According to an article on the junk bond market in Europe published in the Economist in 2016, “The spread (the interest premium over government borrowing rates) paid by junk-bond issuers has risen by nearly three-and-a-half percentage points since March last year.”
a. How can you tell whether a newly issued bond is a junk bond?
b. Why would the spread between government bonds and junk bonds have been rising?
c. Does this increase in the spread make junk bonds a better or a worse investment compared with buying government-issued bonds? Briefly explain.