If investors are pessimistic about the future, the spread between yields on high-grade and low-grade bonds

Question

Quizplus · Accepted Answer

When investors are pessimistic about the future, they tend to be more risk-averse and prefer safer investments such as high-grade bonds, which causes the demand for these bonds to increase and their yields to decrease. On the other hand, the demand for low-grade bonds decreases, causing their yields to increase. As a result, the spread between yields on high-grade and low-grade bonds increases.

If Investors Are Pessimistic About the Future, the Spread Between