Glossary · Bonds and rates
Credit spread
A credit spread is the extra yield a riskier bond pays over a safe government bond of the same maturity: the market’s price for the risk of default.
Also called: yield spread, bond spread, spread over Treasuries, default spread, risk premium
10-year, rated AAA to A, Oct 2026: 79 basis points. Average since 1984: 1.17.
In plain words
If the US government pays 4% to borrow for 10 years and a company pays 5.5%, the 1.5-point difference is the company’s credit spread. It is what investors charge for the chance that the company won’t pay, and for its bonds being harder to sell.
Spreads are quoted in basis points, hundredths of a percentage point: 1.5 points is 150 basis points. The weaker the borrower’s credit rating, the wider its spread; junk bonds pay far more than top-rated companies.
Spreads move with fear. In Oct 2026, high-quality US company bonds paid 0.79 points over Treasuries, narrower than their average of 1.17 since 1984. At the widest, in Oct 2008, the gap reached 4.83 points.
Example
Pricing a company’s bond
- A 10-year Treasury yields 4.0%.
- Investors want 1.5 points more from an A-rated company, so it must offer 5.5%.
- A recession scare widens its spread to 3 points: to sell new bonds it must now offer 7.0%, and its existing 5.5% bonds fall in price.
- On $100 million of 10-year bonds, the wider spread costs it $1.5 million more interest a year.
The spread, not the Treasury yield, is the part of a company’s borrowing cost that reflects the company itself.
One level deeper
A spread pays for more than expected defaults. Investors also want pay for uncertainty, for bonds that are harder to sell in a hurry and, in the US, for company interest being taxed by states while Treasury interest is not. That is why spreads stay above zero even for companies that almost never default.
Spreads tend to widen before and during recessions and narrow in good times, so they are watched as a gauge of financial stress. A sudden widening can shut weaker companies out of borrowing altogether.
There are several versions: the yield spread over Treasuries of the same maturity, the option-adjusted spread (for bonds the issuer can repay early), and the cost of insuring a bond against default with a credit default swap. All measure the same idea: how much extra the market demands to bear credit risk.
The credit spread of high-quality company bonds since 1984
The 10-year yield of US companies rated AAA to A minus the 10-year Treasury yield. It jumped in the 2008 financial crisis and again in 2020, and is narrowest when investors feel safe. Riskier bonds have far wider spreads but follow the same pattern.
The numbers behind the chart
| Date | Corporate (AAA to A) minus Treasury, 10-year |
|---|---|
| Jan 1984 | 0.9% |
| Dec 1990 | 1.4% |
| Dec 2000 | 1.9% |
| Dec 2010 | 1.4% |
| Dec 2020 | 1.1% |
| Dec 2022 | 1.5% |
| Dec 2023 | 1.0% |
| Dec 2024 | 0.7% |
| Dec 2025 | 0.7% |
| Oct 2026 | 0.8% |
Why it matters
It is the price of credit risk: the part of borrowing costs that depends on who is borrowing.
Widening spreads are an early sign of financial stress, and central banks watch them closely.
For bond investors, the spread is the extra return they hope to earn for taking the risk, if defaults stay low.
A common mistake
Myth: A wide spread means a bond is cheap.
In fact: Spreads are wide when investors see more risk. Sometimes they are right and defaults follow; sometimes the fear passes. The spread tells you how worried the market is, not whether it is mistaken.
Questions people ask
What is a basis point?
One hundredth of a percentage point: 0.01%. A spread of 1.5 percentage points is 150 basis points.
What is a normal credit spread?
It depends on the rating. For US companies rated AAA to A, the 10-year spread over Treasuries has averaged 1.17 percentage points since 1984. Lower-rated companies pay more, and junk bonds much more.
Why do credit spreads widen in a recession?
Defaults rise when profits fall, and investors become less willing to hold risk, so they demand more extra yield. Weaker companies may find they can’t borrow at all.
Read more on BigCapital
About the numbers
- The numbers on this page are recalculated from the data every night; the sources are listed at the end of the page.
- US recessions (NBER business cycle dates): National Bureau of Economic Research (NBER), Business Cycle Dating Committee: US Business Cycle Expansions and Contractions.
- High-quality US corporate bonds, 10-year par yield (HQM): U.S. Department of the Treasury, High Quality Market (HQM) Corporate Bond Yield Curve, series HQMCB10YRP; retrieved from FRED, Federal Reserve Bank of St. Louis.
- US Treasury par yield curve rates: U.S. Department of the Treasury, Daily Treasury Par Yield Curve Rates (Interest Rate Statistics).
- S&P Composite (price, dividends, earnings, CAPE), US consumer prices and the 10-year Treasury rate: Robert J. Shiller, Online Data (shillerdata.com).
- High-quality corporate yields are the Treasury’s HQM yield curve, fitted to bonds rated AAA, AA and A. The 10-year Treasury yield is GS10 before 1990 and the monthly average of the Treasury’s daily par yield since.
- This page explains a term. It is not investment advice.