Both high-yield and investment-grade bonds are quoted as spreads over benchmark government bonds?

CFA Level III Fixed Income
#1

Hey guys,

could you please tell me why the following statement is incorrect? “Both high-yield and investment-grade bonds are quoted as spreads over benchmark government bonds”. Don`t have any clue :confused:

Thanks in advance!

#2

Where did you read that it’s incorrect?

#3

EOC LOS 24, question 13

Which of Easton’s statements about the liquidity and trading characteristics of high-yield and investment-grade bonds is most correct?

A) Dealers generally hold larger inventories of high-yield bonds than investment-grade bonds B) Both high-yield and investment-grade bonds are quoted as spreads over benchmark government bonds C) The bid-offer spread of high-yield bonds is normally larger than that of IG bonds with similar maturities

C is the correct answer. However, B seems to be correct as well to me…Any guidance? Thank you!

#4

I am no expert on this topic, but i did read that HY bonds are NOT quoted as spreads over benchmark government bonds. Instead they are quoted directly as a price. This difference has to do with the different characteristics of the two type of bonds.

#5

Please read the question again and try to understand what its asking… i think you will see the answer.

#6

The answer is C :wink: still don’t know why B is wrong.

#7

I am just throwing this out there but is it C because that answer is more closely related to liquidty and trading characteristics than answer B? Answer B is more a reporting characteristics?

#8

See na_27’s comment. The books state that HY bonds are typically quoted as a price, IG as a spread. Hence not both as spread, B is incorrect.