If the Treasury rates does not change, but the yield spread between Treasury and non-Treasury securities changes, the price of a non-Treasury security will:
A) Increase.
B) Decrease.
C) Change.
D) Remain unchanged.
E) None of the above.

Question

Quizplus · Accepted Answer

The price of a non-Treasury security will change if the yield spread between Treasury and non-Treasury securities changes, even if the Treasury rates themselves do not change. This is because the yield spread reflects the difference in perceived risk, and a change in this spread affects the relative attractiveness and therefore the price of non-Treasury securities.

If the Treasury Rates Does Not Change, but the Yield