Market participants talk of interest rates on non-Treasury securities as ________ to a particular on-the-run Treasury security (or a spread to any particular benchmark interest rate selected). This spread reflects the additional risks the investor faces by acquiring a security that is not issued by the U.S. government and, therefore, can be called a ________.

Question

Quizplus · Accepted Answer

Market participants commonly refer to the interest rates on non-Treasury securities as trading at a spread to a particular benchmark interest rate or on-the-run Treasury security. The spread represents the additional risk that investors face by acquiring a security that is not issued by the U.S. government. This additional risk is called the risk premium, which compensates investors for taking on more risk than they would with a Treasury security. Therefore, the correct choice is (B) "trading at a spread"; risk premium.

Market Participants Talk of Interest Rates on Non-Treasury Securities as ________