Credit spread
Fixed IncomeDefinition
Extra yield investors demand for holding a corporate bond over a Treasury of the same maturity. Compensation for default risk and lower liquidity. Spreads widen during recessions, banking crises, and risk-off events; tighten in stable bull markets.
Watch high-yield (HY) spreads as a recession indicator — they typically rise 200-400 bps before/during recessions. The HY spread crossing 600 bps has historically marked attractive entry points for credit risk.
Watch high-yield (HY) spreads as a recession indicator — they typically rise 200-400 bps before/during recessions. The HY spread crossing 600 bps has historically marked attractive entry points for credit risk.
Example
Investment-grade corporate spread (BAML IG index) of ~100 bps means IG corporates yield 1% more than Treasuries. HY spread of ~400 bps means junk yields 4% more. During 2008 crisis HY spreads peaked above 2,000 bps.
Related tool
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