Answer: in periods of heavy new issue supply.

## Explanation Credit spreads represent the additional yield investors demand to hold corporate bonds over risk-free government bonds. They widen (increase) when perceived credit risk increases or when market conditions deteriorate. **Option A: in periods of heavy new issue supply** - **CORRECT** - When there is heavy new issue supply of corporate bonds, the increased supply can overwhelm demand, putting downward pressure on bond prices and upward pressure on yields. - This increased supply relative to demand causes credit spreads to widen as investors require higher compensation for absorbing the additional supply. **Option B: with expectations of a stronger economy** - INCORRECT - Expectations of a stronger economy typically lead to narrowing credit spreads, as improved economic conditions reduce default risk and increase investor confidence in corporate issuers. - Stronger economic growth improves corporate earnings and cash flows, making it easier for companies to service their debt obligations. **Option C: with increased demand for corporate bonds** - INCORRECT - Increased demand for corporate bonds would typically cause credit spreads to narrow, as higher demand pushes bond prices up and yields down. - When investors are eager to buy corporate bonds, they are willing to accept lower yields relative to government bonds, resulting in tighter spreads. **Key Concept**: Credit spreads are influenced by supply-demand dynamics, economic conditions, and risk perceptions. Heavy new issuance increases supply, which typically widens spreads unless matched by sufficient demand.

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