widening of credit spread

sessiljoseph
Good Student
Posts: 22
Joined: Sat Apr 26, 2014 7:29 am

widening of credit spread

Postby sessiljoseph » Wed Apr 30, 2014 11:10 am

Which of the following is most likely to cause an increase (i.e., widening) in a corporate bond credit spread?
a) Economic expansion in the business cycle
b) Increase in the bond’s liquidity
c) Flight to quality
d) Addition of embedded put option feature to the bond

edupristine
Finance Junkie
Posts: 722
Joined: Wed Apr 09, 2014 6:28 am

widening of credit spread

Postby edupristine » Wed Apr 30, 2014 1:06 pm

Credit spread widens when the market volatility increases.
Every time investors wants a safe zone and whenthe market is volatile they ignore to take corporate bonds and they shift to quality which is Risk free bonds.
Hence, this situation will lead to increase in the market rate and it widens credit spread.
Ans is C.


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