Credit spread

The extra yield over a government bond of the same term

In detail

A credit spread is how much more a bond yields than a government bond of the same maturity. It widens as default looks more likely and narrows when conditions are calm. Because it widens early in a downturn, it is watched as a place where worry shows up before it reaches equities. A downgrade widens the spread on that issuer's bonds.

Example

A government bond at 1% against a corporate bond at 2.5% is a spread of 1.5%.

Related terms

Corporate bond Credit rating Government bond

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