What is a Credit Spread?

The market's price of default risk

A credit spread is the yield premium that a corporate bond pays over a comparable-maturity government bond. It compensates the bondholder for default risk and liquidity risk. Investment-grade spreads run from ~50bp to ~250bp through the cycle; high-yield spreads from ~300bp to ~1200bp+. Tightening spreads signal risk-on; widening spreads signal stress.