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LiquidAssets10

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tT
发表于 2013-4-13 23:59 | 只看该作者

CFAI mock exam Vol 3 - Price to rise??

set, why, investment, companies, interest
There is one question set in the 3rd vol of CFAI mock exam, saying that interest rates going to rise and long-term rates will rise more. As a result, more companies prefer to issue investment grade bonds.
However, the answer says that more supply in the investment grade market causes bond prices to rise and spreads to narrow.
While I agree that spreads will narrow, I do not see why the prices are to rise. More supply should lead to price drop, even in the secondary market, bonds with lower coupon rate need to attract investors with lower prices. Moreover, shouldn’t rising interest rates cause all bond prices to fall, no matter investment grade or speculative???
Thanks!!
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AnalystAlan

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发表于 2013-4-13 23:59 | 只看该作者
Do you remember which section on schweser? Thanks!
I think the key is “investment grade”. Relatively, speculative issues even less…

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zephyranalyst

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发表于 2013-4-14 00:00 | 只看该作者
Not offhand. There are a whole bunch of thread on this.
It is about structural vs cyclical changes to the global bond market.

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kmf229

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发表于 2013-4-14 00:00 | 只看该作者
I think the expectation was for rates to rise, so companies that will be needing to issue debt in the near future would rather do so now, at lower rates, so a lot of new issues hit the market around the same time.

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