Suppose you are an active bond investor . You observe that the default spread ( which equals average YTM on high yield bonds - average YTM on the AAA-rated bonds ) is 4% now. You expect this spread to widen ( increase ) in the future, briefly describe a strategy that can benefit from this prediction but that remains unaffected by the changes in the overall level of interest rate. briefly cite the reason why this strategy would be unaffected by the changes in the overall interest rate (in paragraph).

Answer rating: 100% (QA)

This is a strategy which is based on the spread so there would be a long position and also a short position at the same time to reduce the market risk ie risk due to changes in various market factors ... View the full answer