Credit Spread

Bonds & Fixed Income
Updated Apr 2026 • Has calculator

The additional yield a corporate bond pays over a comparable-maturity Treasury bond, compensating investors for credit risk.

What is Credit Spread?

A credit spread is the difference in yield between a corporate bond and a risk-free government bond of the same maturity. It represents the extra return investors demand to compensate for the risk that the issuer may default, downgrade, or suffer reduced liquidity. Wider spreads signal deteriorating creditworthiness or risk-off market conditions; narrower spreads reflect investor confidence and tight credit conditions. Credit spreads are expressed in basis points (1 bp = 0.01%). Investment-grade spreads typically range from 50 to 200 bps over Treasuries; high-yield spreads can range from 300 to over 1,000 bps in stressed markets.

Formula

Credit Spread = Corporate Yield − Treasury Yield

Worked Example

Worked example — Microsoft Corporation (MSFT) 3.30% Notes due 2027

Secondary market, October 2024

Step 1  MSFT bond YTM: ~4.90% (3-year corporate)
Step 2  3-year US Treasury yield: ~4.30%
Step 3  Credit Spread = 4.90% − 4.30% = 0.60%
Step 4  Spread = 60 basis points — typical for Aaa/AAA-rated issuer
Step 5  → Investors require 60 bps premium over risk-free for Microsoft credit risk

Source: FRED — ICE BofA US Corporate Bond Index Option-Adjusted Spread (2024-10-01)

Calculate Credit Spread

YTM of the corporate bond

YTM of a comparable-maturity Treasury bond

Credit Spread

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Not investment advice.

How to Interpret Credit Spread

< 1
< 1%: Tight — AAA/AA investment-grade, near-zero default risk
1 – 3
1–3%: Moderate — A/BBB investment-grade, typical corporate bond range
3 – 6
3–6%: Wide — BB/B high-yield territory or stressed investment-grade
> 6
> 6%: Very wide — distressed or speculative-grade; significant default risk
Sources
  1. FRED — ICE BofA US Corporate Bond Index Option-Adjusted Spread
  2. CFA Institute — Fixed Income Analysis, 3rd ed., Ch. 7
  3. Investopedia — Credit Spread