Schwerser had a question that asked what happens if the credit speads get wider. The answer was that the yield curve woud get steeper. am i missing something. It seems like that would be the case ony if you had a twist. you could have a parallel shift that increases spreads but does not increase the slope of the yield curve. Or am I confused?
I don’t think it’s true in absolute terms, but usually yes. The credit spread gets wider as people flock to safety by buying short term quality bonds which depresses the yields at the short end, so you get a steep curve. Does the curve become steep everytime the credit spread gets wider? I don’t think so.