When interest rates are expected to fall, the spread between corporate and U.S. government bond rates tends to widen due to:

Question

Quizplus · Accepted Answer

When interest rates fall, the likelihood of bonds being called increases, particularly for corporate bonds, which often have call provisions. This call risk causes investors to demand a higher yield on corporate bonds compared to U.S. government bonds, widening the spread.

When Interest Rates Are Expected to Fall, the Spread Between