Hello,
in the CFAI EOC Questions of Fixed Income Page 92. Question 9: The book says that an increase in supply in investment grade bonds brings down spreads and increases prices.
In Question 15 A: The say that the strategy of the bonds manager is to rely on primary market analysis. “The manager believes that a surge of single A issues will result in a widening of spreads, and once the supply is cleared the spreads will narrow”
Doesn’t that contradict itself? What is true?
Thank you in advance
i had asked this question of the CFAI curriculum when I was studying … checking to see if this was an erratum.
This was the response I had gotten then…
The first paragraphs on p 69 under Primary Market Analysis discuss that supply is often misunderstood and that the effect may vary. Question 15, in essence, asks the candidate to explain the manager’s reasoning.
ok, thank you!
I am new in AF. Let me try the rationale behind that. For the surge, I assume that is the supply surge, that means a lot of supply. That will drive down the price & the yield is increased. As a result, the spread to the Treasury is widen. When the supply is over, the price will come up to the original mkt price, that the yield is down. The spread is narrowed. Thanks