Spread (Credit)
Corporate Credit Analysis glossary · Ratings, Syndication & Market Dynamics
Definition
The yield premium of a credit-risky bond over a risk-free benchmark of the same maturity. Reflects expected loss plus risk premium, liquidity premium, and tax/funding factors.
Spread (Credit) in plain English
A credit spread is the extra interest a risky borrower has to pay compared to the safest possible borrower (like the U.S. government) for the same length of loan. It exists because lenders want to be paid more for taking on the chance they won't be fully repaid — plus a little extra for the hassle of possibly being stuck with a bond that's hard to sell. If a safe government bond pays 4% and a shakier company's bond pays 7%, the spread is 3 percentage points — that gap is basically the market's price tag on the company's riskiness.
Also called: Credit
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