The situation
A four-year corporate bond yields 8.25% against a 6.95% benchmark. A seven-year bond yields 8.60% against a 7.40% benchmark.
Your task
Which bond has the wider spread?
Reveal step-by-step solution
Set up the problem
Use the corresponding benchmark at each maturity.
Work through the numbers
Four-year spread = 8.25% − 6.95% = 130 bp. Seven-year spread = 8.60% − 7.40% = 120 bp.
Interpret the result
The four-year issue has a 10 bp wider spread despite lower yield. Examine security, liquidity and embedded options.
What to remember
Always quote the benchmark and tenor with the spread.