Yield spread

Yield spread,

Definition of Yield spread:

  1. Yield spreads are commonly quoted in terms of one yield versus that of U.S. Treasuries, where it is called the credit spread. For example, if the five-year Treasury bond is at 5% and the 30-year Treasury bond is at 6%, the yield spread between the two debt instruments is 1%. If the 30-year bond is trading at 6%, then based on the historical yield spread, the five-year bond should be trading at around 1%, making it very attractive at its current yield of 5%.

  2. A yield spread is the difference between yields on differing debt instruments of varying maturities, credit ratings, issuer, or risk level, calculated by deducting the yield of one instrument from the other. This difference is most often expressed in basis points (bps) or percentage points.

  3. Variation in money earned by commercial mortgages as compared to standard values. Yield spread also compares wholesale mortgage rates with retail mortgage rates. Maintaining this spread allows mortgage brokers to earn money.

How to use Yield spread in a sentence?

  1. When yield spreads expand or contract, it can signal changes in the underlying economy or financial markets.
  2. Yield spreads are often quoted in terms of a yield versus U.S. Treasuries, or a yield versus AAA-rated corporate bonds.
  3. A yield spread is a difference between the quoted rate of return on different debt instruments which often have varying maturities, credit ratings, and risk.
  4. The spread is straightforward to calculate since you subtract the yield of one from that of the other in terms of percentage or basis points.

Meaning of Yield spread & Yield spread Definition