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Four years ago, the relative yield spread between ten-year A-rated corporate securities with no embedded options, and ten-year on-1he-run U.S. Treasuries, was 27.5%. Currently, the nominal yield on ten-year A- rated corporate securities is 5.45%, and the yield on ten-year on-the-run U.S. Treasuries is 4.10%.
Calculate the current relative yield spread, and, assuming that any change in the yield spread is due to changes in the credit spread, identify whether the economy has most likely weakened or strengthened over the past four years.
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B. The current yield spread is 24.8%, indicating that the economy has strengthened.
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