CFA Practice Question

CFA Practice Question

Which of the following can lead to major yield spreads?

I. Different segments or sectors of the market
II. Different seasoning within a market segment or sector
III. Different maturities
A. I and II.
B. I and III.
C. I, II and III.
Explanation: There are four major yield spreads: there will be a yield spread between (1) bonds from different segments of the bond market; (2) bonds from different sectors of the same market (e.g., AAA vs. BBB corporate bonds); (3) bonds with different coupons or seasonings; (4) bonds with different maturities.

User Contributed Comments 8

User Comment
cmisaac seasoning?
jackwez just remember it for the test in case it shows up
capitalpirate from 3, can deduce seasonings = coupons! where's your analytical skills?
Allen88 well, so long as you're nice about giving advice capitalpirate
Kashi2010 captialpirate you may wish to brush up on your Diligence & Reasonable Basis, otherwise you may find yourself violating the standards rather quickly!!

Seasoning refers to the length of time a bond has been paying coupons for - i.e. the establishment of a track record of performance. Seasoned means it has been around for a while (usually >1yr), unseasoned is a new issue.
Kathkun thank you Kashi
thekobe cmisaac think about a bond with duration of 1yr and a bond with duration of 2yr, you will expect a higher yield on the 2yr duration bond.
Ifi2703 Thanks Kashi...haven't come across that term used in reference to bonds!
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