SIE: Yield Spread

Yield Spread

A yield spread is the difference between a bond’s yield and some benchmark yield. Yield spreads are also called credit spreads. The most common spread compares the yield of a bond against the yield of a U.S. Treasury security of a similar maturity. Treasury securities are perceived to be virtually risk-free, so they serve as a useful benchmark to which to compare a bond’s yield. For example, you may want to compare the yield of a 10-year corporate bond with a 10-year Treasury note. If the 10-year Treasury note currently yields 1% and the 10-year corporate bond yields 5%, the yield spread is 4%. This means i