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An investment publication states the yield on the U.S. Treasury bond is 4.000%. The publication...

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Finance

An investment publication states the yield on the U.S. Treasury bond is 4.000%. The publication also states the yields on several long-term bonds, which are listed below. In column three below, report the yield spread of the long-term bonds relative to the U.S. Treasury bond. In column four below, list the characteristics discussed in chapter 3 (liquidity premium, default risk premium, and so forth) that explain the yield spread in column three. In column five below, indicate whether the characteristic increases (+) or decreases (-) the yield spread, all else equal. You do not need to explain the characteristics.

Long-term bonds

Interest rates or yields

Yield

spread

(bps)

Characteristics explaining the differences

Does characteristic increase (+) or

decrease (-) yield spread

Municipal bonds

A-rated (A)

3.850%

High yield corporate bonds

triple-C-rated (CCC)

10.370%

Argentinian government bonds (unrated)

56.810%

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