Credit spread

The yield spread, or difference in the yield, demanded by investors on two securities due to the difference in credit quality.

It reflects the additional return or yield an investor can earn from a security that bears more credit risk relative to one with lower credit risk. The credit spread of a security is usually measured by comparing it to a credit risk-free security, typically the government bond of the country of the issuer.

For example, a US corporate bond will be compared to a US treasury bond of the same maturity, and a Greek government bond will be compared to a German government bond with the same maturity. Both the US company and the Greek state will need to offer a higher return on their bonds because their credit is of lower quality than their risk-free reference. There is a specific credit spread for every maturity (each point along the yield curve maturity).

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