When characteristics of bonds are perceived as unfavourable or favourable to holders of bond then differences of yield spread?

Answer: Option 2

When characteristics of bonds are perceived as unfavourable or favourable to holders of bond then differences of yield spread must changes. Organizations in order to raise capital issue bond to investors which is nothing but a financial contract, where the organization promises to pay the principal amount and interest (in the form of coupons) to the holder of the bond after a certain date. (Also called maturity date).Some Bonds do not pay interest to the investors, however it is mandatory for the issuers to pay the principal amount to the investors.