dotamasta

oz001 Wrote:
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> the flight to quality logic is correct, although
> your interpretation is wrong.
>
> for a start, aaa bond yields will be lower than b
> rated bonds.
>
> when flight to quality happens, investors buy more
> of the less risky (aaa) bond, price rises, aaa
> yield falls. in other words, you will buy the
> lower yielding (aaa) bond and not sell it as you
> mentioned.
>
> similarly, investors sell the riskier (b) bond,
> price falls, yield rises
>
> hence the spread widens

correct.