CFA Level I · CFA Level I Exam · Fixed-Income Markets for Government Issuers
Which feature of a sovereign bond issued by a national government on its domestic market is most likely to make it a benchmark for pricing other fixed-income securities?
High liquidity and regular issuance across maturities best explain why sovereign bonds serve as benchmarks. Large, frequently traded issues give a reliable yield curve that other securities are priced against. Short maturity, high coupons or revenue-linked coupons do not provide that reference function.
- AA short maturity with a high coupon
- BHigh liquidity and a regular issuance schedule across maturitiesCorrect
- CA floating coupon tied to the issuer's own tax revenue
Explanation
Benchmarks need high liquidity, large size and regular issuance across maturities, which builds a reliable yield curve. Short maturity or an unusual coupon linked to revenue would not give broad reference pricing.
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