The term spread:Is the difference in yields between 10 year government bonds and 1 year corporate bonds.Increases during recessions. Is the difference in yields between 10 year government bonds and 1 year government bonds.Typically increases during economic booms.
Question
The term spread:Is the difference in yields between 10 year government bonds and 1 year corporate bonds.Increases during recessions. Is the difference in yields between 10 year government bonds and 1 year government bonds.Typically increases during economic booms.
Solution
The term spread, also known as the yield spread, is the difference between the yields on fixed-income securities with different maturities, but similar credit quality.
A. Is the difference in yields between 10 year government bonds and 1 year corporate bonds - This is not typically what is referred to as the term spread. The term spread usually refers to the difference in yields between bonds of the same credit quality but different maturities.
B. Increases during recessions - This is not necessarily true. The term spread can narrow (flatten) or even become negative (invert) during recessions, as investors demand more yield for short-term bonds relative to long-term bonds due to increased uncertainty.
C. Is the difference in yields between 10 year government bonds and 1 year government bonds - This is true. The term spread is typically the difference in yields between long-term and short-term bonds of the same credit quality.
D. Typically increases during economic booms - This is generally true. During economic expansions, the term spread usually widens as investors demand more yield for long-term bonds relative to short-term bonds due to expectations of rising interest rates.
Therefore, the answer is C. Is the difference in yields between 10 year government bonds and 1 year government bonds.
Similar Questions
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