Definition
Yield spreads measure the difference between yields on different securities. Common spreads include credit spread (corporate vs Treasury), term spread (long vs short maturity), and TED spread (interbank vs Treasury). Widening spreads generally signal increasing risk or economic stress; narrowing spreads indicate improving conditions or risk appetite.
lightbulb Example
The 2-10 year Treasury spread (term spread) is -50bps (inverted). Investment-grade credit spread is 150bps. High-yield spread is 450bps. The inverted term spread signals recession risk, while moderate credit spreads suggest no immediate corporate distress.
verified_user Key Points
- Credit spread: corporate vs government yields
- Term spread: long vs short maturity
- Widening = increasing risk or stress
- Narrowing = improving conditions