Credit Spread
The extra yield a bond offers over a government security of the same maturity, compensating for credit risk.
Formula
Credit Spread = Corporate Bond Yield - Government Security Yield of the same maturity
Unit
bps
In depth
The credit spread is the market's live price for an issuer's credit risk and it moves continuously, unlike a rating that changes occasionally — which makes it the more current signal. Spreads widen when credit conditions deteriorate and narrow when confidence returns, and they widen across the whole market together in a crisis, so a bond can lose value with nothing having happened to its issuer. Widening spreads hurt bondholders twice over when they coincide with rising government yields. Comparing spreads across issuers of the same rating shows where the market disagrees with the agencies.
Worked example
A corporate bond at 8.6% against a government security at 7.1% has a spread of 150 basis points. If the spread widens to 250 with the government yield unchanged, the bond's price falls even though the issuer's business has not changed.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Credit Spread” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.