A yield spread is the difference in yields between two bonds, typically expressed in basis points (bps), where 1 basis point equals 0.01%. The absolute spread = Yield A - Yield B gives the raw difference, while the relative spread = (Yield A - Yield B) / Yield B expresses it as a percentage of the benchmark yield. The spread ratio (Yield A / Yield B) shows how many times larger one yield is relative to the other.

Spreads are used to measure the additional compensation investors demand for taking on extra risk. A corporate bond yielding 5.25% versus a Treasury at 3.50% has a 175 basis point Credit Spread, reflecting the market's assessment of the corporate issuer's default risk, liquidity risk, and other factors. Widening spreads signal increasing risk perception, while narrowing spreads suggest improving credit conditions or growing investor confidence.

Common spread comparisons include corporate vs. Treasury (credit spread), high-yield vs. investment-grade (quality spread), and different maturities of the same issuer (term spread or Yield Curve slope). Monitoring these spreads over time helps fixed-income investors identify relative value opportunities and gauge the overall health of credit markets.