During the financial crisis in October 2008, the federal government could borrow at a rate of 2.73% (the yield on five-year Treasury securities). During October 2008, though, Baa borrowers (corporate borrowers rated by Moody’s as not being completely reliable) had to pay 8.88%.

a. What was the difference in borrowing costs for these corporate borrowers and the federal government?

b. Go to www.research.stlouisfed.org/fred2/categories/22.

Click on the link for “Treasury Constant Maturity”

and find the most recent interest rate on 10-year U.S. Treasury bonds. Then click back to the original web page on the link for “Corporate Bonds,”

then “Moody’s,” and find the rate for Baa corporate bonds. What is the current difference in borrowing costs between corporate borrowers and the U.S.

government?

c. Has this difference in borrowing costs increased or decreased since the height of the financial crisis in October of 2008? Why?