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Fixed Income: effect of surge in new issuance's in a particular bond sector
Hi, Somewhere in the text it was mentioned that when there are new issuance's in the market, spreads in that sector tighten as this is verifies the existing market spreads, indicating a favorable environment etc etc which is not intuitive as it is against what we will infer from demand supply analysis. I agree to this point.
Again in CFA text in Practice problem 15, page 96 it is mentioned that surge of issuance by single A rated companies will blow out spreads creating buying opportunities and once issuance subsides, spreads will tighten. I am confused as again over here demand supply analysis is used. Is there something I am missing as I have not used institute material for reading? Can we have both the scenarios possible and used in exams?