Credit Spread
Credit spread is the yield difference between a corporate bond and a risk-free benchmark (usually Treasury) of similar maturity, compensating for default risk.
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Definition
Credit spread is the yield difference between a corporate bond and a risk-free benchmark (usually Treasury) of similar maturity, compensating for default risk.
Use case
Used in fixed income workflows, analysis, and technical interviews.
Judgment check
Useful only when the assumptions and inputs behind the metric are understood.
Deep dive
How to think about Credit Spread
Spreads widen during economic uncertainty (flight to quality) and narrow during expansions. Investment-grade bonds typically have spreads of 50-200 basis points; high-yield bonds range from 200-1000+ bps. Credit spreads reflect market expectations of default probability and recovery rates.
Example: A 10-year Apple bond yields 5.2%, while the 10-year Treasury yields 4.0%. The credit spread is 120 basis points (1.20%), reflecting Apple's strong creditworthiness but still higher risk than the US government.