Question：
Credit spreads are most likely to narrow during:
A. economic contractions.
B. economic expansions.
C. a period of flight to quality.
Answer = B
Credit spreads narrow during economic expansions and widen during economic contractions. During an economic expansion, corporate revenues and cash flows rise, making it easier for corporations to service their debt, and investors purchase corporates instead of Treasuries, thus causing spreads to narrow.
CFA Level I
"Fundamentals of Credit Analysis," Christopher L. Gootkind
Section 6
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