In June 2007 the spread on BBB (i.e. low- rated) paper with maturity 1- 5 years relative to Commonwealth Government bonds was 0.88%, but by the end of 2008 it had reached 4.50%, and in early 2009 it went to around 5.80%.

Question

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The increase in the spread from 0.88% in June 2007 to 4.50% by the end of 2008 and further to around 5.80% in early 2009 reflects the financial crisis impact, which led to higher perceived risk and thus higher yields on lower-rated bonds compared to government bonds.

In June 2007 the Spread on BBB (I