Bond Spread

Bond spread (or yield spread) is the difference in yield between a bond and a comparable-maturity benchmark, typically a U.S. Treasury security. The spread is expressed in basis points (bps), where 1 basis point equals 0.01%. For example, if a corporate bond yields 5.5% and the 10-year Treasury yields 4.0%, the spread is 150 basis points. Spreads compensate investors for credit risk, liquidity risk, and other factors beyond the risk-free rate. Wider spreads indicate higher perceived risk or market stress — during the 2008 financial crisis, investment-grade spreads exceeded 600 bps. Narrower spreads suggest confidence and risk appetite. Key spread types include the G-spread (vs Treasury), I-spread (vs swap rate), Z-spread (zero-volatility spread), and OAS (option-adjusted spread for bonds with embedded options). Monitoring spread trends is essential for fixed-income investors as spreads provide real-time market sentiment about credit conditions.