In the BB of the curriculum ( reading- credit strategies), they ask the following:
- An active manager observes a yield spread for an outstanding corporate bond that is above the G-spread for that same bond. Which of the follow- ing is the most likely explanation for the difference?
- The government benchmark bond used to calculate the yield spread has a shorter maturity than the corporate bond, and the benchmark yield curve is upward sloping.
I understood the part related to the upward slowing yield curve, but I didn’t understand why the maturity has to be short?
I mean when we calculate the spread between a corporate bond and a government bond
(whether interpolated or not), we usually match the maturity of the two assets, so I don’t get why they are saying that the maturity of the government bond, in this case, was shorter.