Definition of Credit spread:
A credit spread is the difference in yield between a U.S. Treasury bond and another debt security of the same maturity but different credit quality. Credit spreads between U.S. Treasuries and other bond issuances are measured in basis points, with a 1% difference in yield equal to a spread of 100 basis points. As an example, a 10-year Treasury note with a yield of 5% and a 10-year corporate bond with a yield of 7% are said to have a credit spread of 200 basis points. Credit spreads are also referred to as "bond spreads" or "default spreads." Credit spread allows a comparison between a corporate bond and a risk-free alternative.
Difference between the value of two securities which have different prices but similar interest rates and maturities.
Additional interest paid by a borrower having a lower than satisfactory credit rating.
A credit spread can also refer to an options strategy where a high premium option is written and a low premium option is bought on the same underlying security. This provides a credit to the account of the person making the two trades.
How to use Credit spread in a sentence?
- Bond credit spreads are often a good barometer of economic health - widening (bad) and narrowing (good).
- A credit spread reflects the difference in yield between a treasury and corporate bond of the same maturity.
- A credit spread can also refer to an options strategy where a high premium option is written and a low premium option is bought on the same underlying security.
- I did not know how to determine the credit spread , but I heard it was very significant to me and my credit.
- What we gain due to the credit spread will offset any loss we take by approving high credit risk consumers.
- You should try and break down the credit spread to make sure that you know you can get more in teh future.
- A credit spread options strategy should result in a net credit, which is the maximum profit the trader can make.
Meaning of Credit spread & Credit spread Definition