A “credit spread” compares the yield on credit-risky debt with a benchmark yield of comparable maturity. Federal Reserve discussion notes that corporate-bond spreads compensate for default and liquidity risks rather than representing a pure default probability.
ReviewedEvidence1 sourceSectionPhrases & Idioms
Quick answer
A credit spread is the yield spread on debt such as corporate bonds over a comparable lower-risk benchmark such as similar-maturity Treasury securities.
Key details
Canonical Formcredit spread
Core MeaningA credit spread is the yield spread on debt such as corporate bonds over a comparable lower-risk benchmark such as similar-maturity Treasury securities.
Further guidance
Contextual Examples
The report compares the corporate bond yield with a similar-maturity Treasury yield to calculate the credit spread.
A wider credit spread can reflect several risk and liquidity components, so it should not be described as default risk alone.
History Boundary
Current authoritative financial meaning is published without claiming an exact inventor, coinage date, or absolute first use.
Meaning
A credit spread is the yield spread on debt such as corporate bonds over a comparable lower-risk benchmark such as similar-maturity Treasury securities.
Meaning Boundary
Do not interpret the spread as a pure default probability: the reviewed evidence notes compensation for liquidity and other risks as well as default risk.
Practical Use
Use “credit spread” for the yield difference between credit-risky debt and a comparable lower-risk benchmark, commonly matched by maturity.
Tone Boundary
Technical finance term; identify the benchmark and maturity basis when precision matters.
Usage Boundary
Credit spreads can contain compensation for default, recovery, liquidity, and other risks, so they should not be read as a one-for-one measure of expected default loss.
Sources and evidence
Sources are shown with the role they play in this guide. Historical or style-sensitive claims are kept within the evidence boundary described above.
Average Effective Spread is a current Regulation NMS defined term. This guide preserves the specific U.S. securities-rule scope instead of substituting an ordinary-language meaning.
Average Percentage Effective Spread is a current Regulation NMS defined metric and should be read with the rule-defined average effective spread and average midpoint components.
Average Percentage Realized Spread is a current Regulation NMS defined metric; the page keeps its rule-defined denominator and does not substitute a generic percentage-spread meaning.
Average Quoted Spread is a current Regulation NMS defined term. This guide preserves share weighting and the special executable-time rule for midpoint-or-better limit-order executions.
Average Realized Spread is a current Regulation NMS defined term. This guide preserves its share weighting, buy/sell direction, post-execution timing, and final-trading-hours midpoint provision.
A bid-ask spread is the gap between quoted buying and selling prices and is one market-liquidity measure; wider spreads generally imply greater trading cost or compensation for liquidity provision. Treat the spread as one dimension of liquidity, not as a complete measure of market liquidity, depth, or price impact.
A “credit crunch” refers to a sharp restriction in credit supply or availability, not merely any period when borrowing declines. Federal Reserve discussion emphasizes the difficulty of separating lender-side supply restraint from weaker loan demand or deteriorating borrower quality.
Effective spread is an execution-cost measure based on the distance between an execution price and the contemporaneous quote midpoint, conventionally expressed on a round-trip basis. Do not substitute the displayed quoted spread: price improvement or executions away from the quote can make effective spread differ from quoted spread.
