Just as in the past, high yield bonds trade at an interest rate spread over Treasury bonds, which are more liquid and less subject to default risk.

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Moreover, they should compete to borrow any funds that are offered in private markets at rates below the interest rate on reserve balances because, by so doing, they can earn a spread without risk.

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Take, for example, one indicator of the market's appetite for risk, the spread between swaps of fixed- and floating-rate interest payments (see chart).

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