The figure provides the yield spreads of the long-term corporate bonds versus U.S. treasury bonds. Choose ONE wrong explanation for the increase in the spread during 2009. Spread (%)10Na542005Panel A: Yield Spread of Long-Term CorporateBonds Versus U.S. Treasury BondsAaa2006-A<-Baa200720082009Because investors decrease capital allocated to safer assets (US treasury bonds)Because of the risk reassessment by investorsBecause the price of the bonds fallsBecause of the downgrading of many of the bonds backed by mortgages

The bond spread or bond yield is the difference in the yields of two different classes of bonds…

Answered: The figure provides the yield spreads…

The figure provides the yield spreads of the long-term corporate bonds versus U.S. treasury bonds. Choose ONE wrong explanation for the increase in the spread during 2009.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

The figure provides the yield spreads of the long-term corporate bonds versus U.S. treasury bonds. Choose ONE wrong explanation for the increase in the spread during 2009.

Spread (%)
1
0
N
a
5
4
2005
Panel A: Yield Spread of Long-Term Corporate
Bonds Versus U.S. Treasury Bonds
Aaa
2006
-A
<-Baa
2007
2008
2009
Because investors decrease capital allocated to safer assets (US treasury bonds)
Because of the risk reassessment by investors
Because the price of the bonds falls
Because of the downgrading of many of the bonds backed by mortgages

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