Level 1 CFA® Exam:
Volatility of Yield Spreads
Factors that impact the level and volatility of yield spreads:
Note that the spreads for higher-quality bonds are less volatile and change less as a result of the above-mentioned factors.
If we want to quantify the impact of the change in a spread on the bond price, we can use the following formulas:
- Yield-to-maturity on a corporate bond depends on government benchmark yield and spread over the benchmark.
- Factors that impact the level and volatility of yield spreads are: credit cycle, broader economic conditions, financial market performance, broker-dealers' willingness to provide liquidity in the market, and bond market supply and demand.