Flight to quality
A move by investors out of riskier assets into the safest government bonds in times of stress. Government yields fall while credit spreads widen.
Where you will meet it
Flight to quality appears in 2 learning outcomes on the CFA syllabus. A few of them:
- Explain empirical duration and why it may diverge from analytical duration
“It matters because for lower-quality credit the two diverge sharply: when government yields fall in a flight to quality, credit spreads usually widen at the same time, so a high-yield bond's price rises less than its analytical duration predicts, and sometimes falls.”
- Explain how major economic drivers feed into a view on spreads, benchmark rates and shifts in the yield curve
“Flight to quality pushes government yields down and credit spreads out.”
See also
Practise it
Practise flight to quality until it is automatic: questions that explain every wrong option.
Take the free diagnostic →