Definition
Credit spread is the additional yield a bond pays above the risk-free Treasury rate to compensate investors for credit risk. Spreads widen during economic uncertainty as investors demand more compensation for default risk. They narrow when confidence is high. Tracking spreads helps gauge market risk sentiment.
Formula
Credit Spread = Corporate Bond Yield - Treasury Yield
Example
A corporate bond yields 6% while a similar Treasury yields 4%. The credit spread is 200 basis points (2%).
FAQ
What is Credit Spread (Bonds)?
The yield difference between a corporate bond and a similar-maturity Treasury.
How do you calculate Credit Spread (Bonds)?
A common formula for Credit Spread (Bonds) is: Credit Spread = Corporate Bond Yield - Treasury Yield
Why is Credit Spread (Bonds) important?
Credit Spread (Bonds) helps investors evaluate fixed income and make more informed decisions.