Ch.10 · Benchmarks and Performance Evaluation · hard
What is 'credit spread' in debt markets and how does it affect debt fund returns?
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EXPLANATION
Credit spread is the yield premium a corporate bond offers over a risk-free government bond of equal maturity. It compensates investors for credit risk. When credit spreads widen (increase), it reflects increased risk perception — existing bond prices fall, hurting debt fund NAVs. When spreads tighten, bond prices rise, benefiting the fund.
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