Month End Glossary

Yield Spread

Yield Spread refers to the difference in yields between two debt instruments, typically of different credit quality or maturity durations.

In finance, a Yield Spread measures the difference in interest rates, expressed in percentage points or basis points, between two fixed income securities. Yield spreads are commonly analyzed to understand differences in credit risk, market conditions, and expected returns. A wider yield spread indicates a higher risk difference or reward between the instruments being compared. Examples include comparing treasury bonds to corporate bonds (credit spread) or short-term bonds to long-term bonds (maturity spread). For instance, a three-year corporate bond yielding 5% compared to a same-maturity treasury note yielding 3% results in a credit spread of 2% (or 200 basis points). Yield spreads provide insights for investors to assess risk and return tradeoffs.

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