Reading 65: Understanding Yield Spreads - LOS f ～ Q1-4

答案和详解如下：

1．Which of the following is the most appropriate strategy for a fixed income portfolio manager under the anticipation of an economic expansion?

A)   Purchase corporate bonds and sell treasury bonds.

B)   Sell corporate bonds and purchase treasury bonds.

C)   Enter a pay-fixed, receive-floating rate swap.

D)   Enter a pay-floating, receive-fixed rate swap.

The correct answer was A)

During periods of economic expansion corporate yield spreads generally narrow, reflecting corporate bonds decreased credit risk. If yield spreads narrow, the price of corporate bonds increases relative to the price of treasuries.

2．If investors expect greater uncertainty in the bond markets, you should see yield spreads between AAA and B rates bonds:

A)   widen.

B)   narrow.

C)   stay the same.

D)   slope downward.

The correct answer was A)

With greater uncertainty, investors require a higher return for taking on more risk. Therefore credit spreads will widen.

3.If a U.S. investor is forecasting that the yield spread between U.S. Treasury bonds and U.S. corporate bonds is going to widen, then which of the following is most likely to be TRUE?

A)   The economy is going to contract.

B)   The economy is going to expand.

C)   No change in the economy.

D)   The U.S. dollar will weaken.

The correct answer was A)

If economic conditions are expected to get worse, then the probability that corporations may default increases and causes credit spreads to widen.

4.Which of the following is the reason why credit spreads between high quality bonds and low quality bonds widen during poor economic conditions?

A)   indenture provisions.

B)   interest risk.

C)   delinquency risk.

D)   default risk.

The correct answer was D)

During poor economic conditions the probability of default increases and thus credit spreads widen.