Problem: Commercial Paper Yield Curve and Rates.
1: Assume that the current shape of the Treasury yield curve is in its "normal" position - slightly upward sloping. If plotted on the same graph, would the position of the commercial paper yield curve be higher, lower, or about the same position as that of the Treasury yield curve? Explain your answer.
2: A securities analyst made the comment that the normal maturity of commercial paper is between 20 and 45 days and rarely would a maturity exceed 270 days in length. Explain why the commercial paper yield curve doesn't extend beyond 270 days.
3: What should happen to the "spread" or the difference between commercial paper rates and T-bill rates during recessionary periods and why? Note: Bankruptcies and defaults are more likely to take place during a recession.