When the Russian government defaulted on its bonds in August 1998:
A) risk spreads decreased significantly.
B) yields on U.S. Treasury securities fell while yields on corporate bonds rose.
C) yields on U.S. Treasury securities rose while prices of corporate bonds rose.
D) risk spreads did not change.

Question

Quizplus · Accepted Answer

When the Russian government defaulted on its bonds in August 1998, it led to a flight to quality, where investors moved their money to safer assets. As a result, yields on U.S. Treasury securities, which are considered among the safest investments, fell due to increased demand. At the same time, yields on corporate bonds, which carry more risk, rose as their prices fell because investors viewed them as riskier compared to U.S. Treasuries.

When the Russian Government Defaulted on Its Bonds in August