Suppose 10-year T-bonds have a yield of 4.30% and 10-year corporate bonds yield 7.35%. Also, corporate bonds have a 0.75% liquidity premium versus a zero. liquidity premium for T-bonds, and the maturity risk premium on both Treasury and corporate 10-year bonds is 1.15%. What is the default risk premium on corporate bonds?

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Treasury Market

On-the-run securities are the most recently issued securities in the market depth and are therefore traded at some premium. The off-the-run securities are the ones issued just before the most recent ones. The on-the-run securities have a lower yield to the investor than the off-the-run securities.