Credit Spread

Credit spread is a difference in yield between debt securities. It is most commonly referenced versus government debt. The difference is typically measured in basis points, where a hundred basis points equals one percentage point. So, for example. if a company issues debt with a five-year maturity that has an interest rate of 5%, then the yield is 5%. If a five-year government bond has a yield of 3.25%, then the company’s yield is 1.75%, or 175 basis points higher, so their credit spread is 175 basis points.