求解释

问题如下：

Based on Bank’s strategy report, what should River conclude regarding the direction of benchmark yields and spreads over the benchmark yield, respectively? Yields and spreads, respectively, most likely will be:

选项：

A.higher and wider.

B.lower and narrower.

C.higher and narrower.

解释：

Solution

1. A is correct. The strategy report describes conditions that should result in higher benchmark yields and wider spreads over the benchmark yield. Benchmark bond yields capture the macroeconomic factors affecting all debt securities, such as expected inflation rate and the expected real rate of return, and the uncertainty regarding those variables. Rising wages and higher commodity prices would drive inflation higher thus pushing the benchmark yield up. The spread over the benchmark bond yield captures the microeconomic factors that pertain to the corporate issuer and the specific issue itself, such as the expected loss due to default, and other factors, like liquidity. Credit rating migration from year to year is a concern even for investment-grade corporate bonds. Bank notes the deteriorating economic environment that is resulting in downgrade risk, which would cause spreads to widen. Note the various components of a corporate bond yield outlined in the reading for reference.

2. B is incorrect because inflation would drive higher benchmark yields, not lower and wider spreads and not narrower over the benchmark yield due to rising expected inflation.

3. C is incorrect because rising expected inflation would drive wider spreads, not narrower, over the benchmark yield.

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