Hi, can someone explain why spreads increase when the primary market has relatively high issuances? The text seems to always say that in Reading 22, but it’s counter intuitive to me.
The way I would look at it is if a lot of bonds are getting issued, holding Demand for bonds constant, as you increase the number of issues, the rate you would have to offer would be higher, thus increasing the spread over the treasury rate. The text says spreads actually get tighter though, so what am I missing?