A 10-year Treasury note has a yield of 2.71 percent, and a Baa (BBB) corporate bond with comparable maturity has a yield of 4.93 percent. The difference in yields owes to
A) Differences in credit risk
B) Differences in liquidity
C) Expected inflation
D) Both a and b

Question

Quizplus · Accepted Answer

The difference in yields between a 10-year Treasury note and a Baa (BBB) corporate bond with comparable maturity is primarily due to differences in credit risk and liquidity. Treasury notes are considered virtually risk-free since they are backed by the full faith and credit of the U.S. government, whereas corporate bonds carry a higher risk of default. Additionally, Treasury securities are generally more liquid than corporate bonds, making them easier to buy and sell without significantly affecting the price.

A 10-Year Treasury Note Has a Yield of 2