Question

The next graph shows the interest rate spread between two commercial papers, i.e., A2/P2 rate less AA rate. This is the spread between high and low quality 30 day nonfinancial commercial paper. In other words, the spread is the risk premium.

Thirty-day A2/P2less AA nonfinancial commercial paper (daily)Basis points spread spread, 5-day moving avg 700 600 500 400 300 200 100 2005 2007 2009 2011 2001 2003

Why do you think the rate spread was greater during 2001-2002 and 2007-2009 compared to 2003-2006?

How much is the spread these days? Use the following website to find the current information.

Try http://www.federalreserve.gov/releases/cp/ for the commercial paper interest rates.

Answer 1

The spread was greater during 2001-2002 and 2007-2009 compared to 2003-2006 because 2001-2002 saw the end of the dot com bubble and the economy was in dire condition. Similarly in 2007-2009 there was sub prime crisis which lead to recession and again the spread was high.

The spread as on January 28th,2019 for 30 days is:

2.77%-2.43%=0.34% or 34 basis points