Which of the following best describes the expected shape of the credit spread curve in an economic
Question:
Which of the following best describes the expected shape of the credit spread curve in an economic downturn?
A. Investment-grade and high-yield issuers usually experience similar credit spread curve steepening because of declining corporate profitability.
B. High-yield issuers usually experience more spread curve steepening than investment-grade issuers because higher leverage leads to a greater decline in profitability.
C. High-yield issuers often experience more pronounced flattening or credit spread curve inversion in an economic downturn because the probability of downgrade or default is higher in the near term than the long term.
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The correct answer is C While investmentgrade and highyield issuers b...View the full answer
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