Question

cary 15 years out 60 basis points 6 months ago and 70 basis points today, What is true about these QUESTION Acompany bordpread or a 5 year remaining ife security natbasis post morths ago and 50 Bord spread indic a ting and indicates records Bond spread indices reducing r isk and Co indicates reducing credits Bord spre indicates increasing rid C irocinerasing risk Bord spread in reducing credit risk and increasing risk

Answer 1

Question 8 :

As the bond spread is decreasing,bond spread is the difference between the yield of the bond and the treasury. It is an indicator that investing in this bond is becoming safer, as the yield offered by the bond is lowering. Decreasing spread means that the probability of default in the bonds is decreasing and it is an indicator of decreasing/ reducing credit risk.

Credit risk is the risk that the bonds may default.

Credit default swap, is an insurance to the bond holder against default of the bond by the issuer. As the spread in the CDS is widening, it is an indicator of a higher perceived risk , that is why the bond holder has to pay a higher price to insure against default by the issuer. So, widening of spread of the CDS indicates a higher risk.

So, the correct option D.