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Hi John,
I am sorry- tried posting a reply to my previous post but could not so had to create a new thread
For this statement: “If credit spreads are too high, debt will have to be issued at a premium. If credit spreads are too low, it will have to be issued at a discount as there may not be a full take up”
If high yield = discount bond, doesn’t a high credit spread lead high yield and hence a discount bond? Why is it the other way around?
If the credit spread is high, then the coupon rate will have to be high and this will mean a higher issue price. If the credit spread is low, then the coupon rate will be low and this will mean a lower issue price if they want investors to buy the debt.
After breaking everything down I finally understood it. Thank you so much for the help!
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