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translateGLOSSARY · FIXED INCOME

What is Credit Spread?

A credit spread is the extra yield a bond pays over a risk-free government bond to compensate for its default risk.

PrepClever Glossary · Fixed Income

updateUpdated July 2026

Formula

Credit Spread = Corporate Bond Yield − Government Bond Yield (same maturity)

The wider the credit spread, the more the market is charging for the issuer's default risk. Spreads widen when credit conditions deteriorate (risk-off) and narrow when confidence improves. They are a key barometer of credit-market health.

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Example

If a corporate bond yields 9% and a same-maturity G-Sec yields 7%, the credit spread is 2% (200 basis points).

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Relevant NISM series

CFANISM Series XV

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Related Terms

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Glossary

Yield to Maturity (YTM)

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Glossary

Duration

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FAQs about Credit Spread

What causes credit spreads to widen?add

Rising default risk, economic stress or a flight to safety cause investors to demand more yield for holding credit risk, widening spreads over government bonds.

Where to go from here

Credit Spread is one term in a much larger syllabus. These are the fastest routes into the rest of it.

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