Credit spread
Principles of Finance glossary · Principles Of Finance
Definition
The yield on a corporate bond minus the yield on a comparable-maturity Treasury.
Credit spread in plain English
A credit spread is the extra interest a company has to pay to borrow, compared to what the government pays. Government bonds (Treasuries) are treated as the safest possible loan, so any company must offer a higher yield to tempt lenders who face a real chance of not being paid back — the spread is that gap. If a safe Treasury yields 4% and a company's bond yields 6%, the credit spread is 2%. A wider spread signals investors see more risk in that company, much like a riskier borrower getting stuck with a higher interest rate on a loan.
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