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Unformatted text preview: increasing (hurts us) Spreads are amount that corporate yields are higher than treasury yields Investment bankers notorious for under pricing bonds, so as to not hurt their reputations To worry about in pricing: o Maturity length o Industry comparables (other WorldCom bonds) o Bond ratings The riskier the bond, the higher the spread (bad) Investors are bullish: o Spread will be lower (bull = prices rise) Investors are bearish: o Spread will be higher (bear = prices fall) In this case investors were bullish: o WorldCom bonds were priced way too high...
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