What would you expect to have happened to the spread between yields on commercial paper and Treasury notes immediately after September 11, 2001?
A)No change, as both yields will remain the same.
B)Increase, the spread usually increases in response to a crisis.
C)Decrease, the spread usually decreases in response to a crisis.
D)No change, as both yields will move in the same direction.

Question

Quizplus · Accepted Answer

After a crisis, investors generally become more risk averse and demand higher yields to be compensated for holding riskier assets like commercial paper. This will cause the spread between commercial paper and Treasury notes to increase.

What Would You Expect to Have Happened to the Spread