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

Question

Quizplus · Accepted Answer

During a "flight to quality," investors move their money to safer assets, which typically causes the spread between safer government bonds (like Canada bonds) and riskier corporate bonds (like Baa rated bonds) to increase. This is because the demand for safer assets drives up their prices (and thus lowers their yields), while the demand for riskier assets decreases (lowering their prices and increasing their yields).

During a "Flight to Quality" ________