Schweser text says:
Increases in the number of new corporate bond issues are sometimes associated with narrower spreads and relatively storng returns. A possible explanation is that the valuation of new issues validates the prices of outstanding issues, which relieves pricing uncertainty and reduces all spreads.
The answer for CFAI practice problem 15a says:
The manager expects that in the first quarter of 2000, there will be a surge of single-A rate issues that will come to market, resulting in a widening of spreads and thereby providing an opportunity to purchase single-A rate issues relatively cheaplyversus BBB issues.
So Schweser says an increase in supply leads to narrow spreads, while CFAI says an increase in supply leads to widening spreads, why are these different?
Increases in the number of new corporate bond issues are sometimes associated with narrower spreads and relatively storng returns. A possible explanation is that the valuation of new issues validates the prices of outstanding issues, which relieves pricing uncertainty and reduces all spreads.
The answer for CFAI practice problem 15a says:
The manager expects that in the first quarter of 2000, there will be a surge of single-A rate issues that will come to market, resulting in a widening of spreads and thereby providing an opportunity to purchase single-A rate issues relatively cheaplyversus BBB issues.
So Schweser says an increase in supply leads to narrow spreads, while CFAI says an increase in supply leads to widening spreads, why are these different?