Bonds & rates
Credit spread
The extra yield a corporate bond pays over a government bond of the same maturity.
How it works
The spread is the market’s price for taking credit risk. It widens when investors grow worried and narrows when they are comfortable.
Spreads are among the most reliable stress indicators available, and they usually move before equity markets acknowledge a problem.
Formula
Credit spread = corporate bond yield − government bond yield of the same maturityRelated terms
- Credit riskThe risk that a borrower fails to make the payments it promised.
- High-yield bondDebt rated below investment grade, paying more because default risk is materially higher.
- Yield to maturityThe total annual return from holding a bond to maturity, counting coupons and any price gain or loss.
- Risk-free rateThe return available with essentially no risk of default, used as the baseline for every other return.
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Educational reference only. Nothing here is investment advice or a recommendation to buy or sell anything, and tax treatment depends on your own circumstances and the country you are in.