8. More on types of bonds You can distinguish the various types of bonds by their terms of contract, pledge of collateral, and so on. Identify the type of bond based on each description given in the table that follows: Description Type of Bond These bonds are collateralized securities with first claims in the event of bankruptcy. These bonds are traded in the bond markets based on investors' belief that the issuer will not default on the repayment. These bonds have no collateral and usually offer higher yields. These bonds have a claim on assets only after senior debt has been paid in full. Based on your understanding of bond ratings and bond-rating criteria, which of the following statements is true? O During an economic recession and in a pessimistic environment, the yield spread between US government bonds and corporate bonds could be higher than during good economic times. O During a period of economic growth and in an optimistic environment, the yield spread between US government bonds and corporate bonds could be higher than during an economic recession and a pessimistic environment. In 2008, the United States began to witness one of the worst recessions since the 1930s. The collapse of the housing bubble in 2006 led to a massive decline in real estate prices, affecting consumers and institutions, especially banking and financial entities. Severe liquidity shortfalls in the United States as well as other global markets led to a serious credit crisis. During the credit crisis of 2008-2009, several banks and other businesses went through a reorganization process or were forced to liquidate. Consider the following example: In January 2009, American electronics retailer Circuit City Inc. closed all of its stores and sold all of its merchandise. Source: "Circuit City to Shut Down." CNN Money. Cable News Network, n.d. Web. August 31, 2010. http://money.cnn.com/2009/01/16ews/companies/circuit_city This is an example of: o Reorganization O Liquidation