Financial Risk Manager Part 1
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A financial advisor is explaining the basics of bond trading to a client. The advisor focuses on the connections between the credit spread of a bond and that bond's yield. Which of the following statements would the advisor be correct to make to the client?
A
When the credit spread on a bond decreases, the yield on that bond will increase.
B
As the maturity of a bond increases, the credit spread increases for lower-rated bonds and decreases for higher-rated bonds.
C
US corporate bonds pay a higher yield than US treasury bonds to compensate the buyer for taking more risk.
D
Higher-rated bonds pay a higher yield because they have a higher credit spread.