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The Measured Credit Spread Widens as You Move into Lower

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The measured credit spread widens as you move into lower and lower quality bonds i.e., the spread between long-term T-bonds and BBB bonds is higher than the spread between long-term T-bonds and AAA bonds. Where do you generally find the largest increase in the credit spread due to a single step down in credit rating? Explain.

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Definitions:

Equation

An equation is a mathematical statement that asserts the equality of two expressions, typically containing one or more variables.

Center

In geometry, the central point of a circle or sphere, equidistant from all points on the perimeter or surface; in other contexts, it refers to a focal point or main area of activity.

Point

A location in space, often defined by its coordinates in a given dimension.

Center

The midpoint of a geometric shape or object, or the average position of all the points in the shape.

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