During a "flight to quality"
A)the spread between Treasury bonds and Baa bonds increases.
B)the spread between Treasury bonds and Baa bonds decreases.
C)the spread between Treasury bonds and Baa bonds is not affected.
D)the change in the spread between Treasury bonds and Baa bonds cannot be predicted.

Question

Quizplus · Accepted Answer

During a "flight to quality," investors move their money into safer assets, such as Treasury bonds, which are considered risk-free. This increased demand for Treasuries lowers their yields, while the yields on riskier bonds, like Baa-rated corporate bonds, increase due to decreased demand. As a result, the spread between Treasury bonds and Baa bonds widens.

During a "Flight to Quality