The Historical Yield Spread Between the AA Bond and the AAA

question 65

Multiple Choice

The historical yield spread between the AA bond and the AAA bond has been 25 basis points. Currently the spread is only 9 basis points. If you believe the spread will soon return to its historical levels, you should ________.

• A) buy the AA and short the AAA
• B) buy both the AA and the AAA
• C) buy the AAA and short the AA
• D) short both the AA and the AAA