Yield spread

Written by Fmi.Online Thursday November 10, 2022
The yield spread, also known as the credit spread, is the difference between the yields of two investments in terms of credit quality and the risk of investing in one debt instrument instead of another instrument.

Explanation :

The yield spread is measured in basis points (bps) and enables bond investors to compare the yield, maturity, liquidity and solvency of two debt instruments. For instance, the yield of a municipal bond is 7.50%, and the yield of a corporate bond is 8.50%. The difference between the two yields is: 8.50% – 7.50% = 1% or 100 basis points (one basis point = 0.01%). However, a corporate bond is riskier and has a shorter maturity than a municipal bond. All these factors are taken into consideration when comparing one security over another using the yield spread.

In a nutshell :

  • A yield spread is a difference between the quoted rate of return on different debt instruments which often have varying maturities, credit ratings, and risk.
  • The spread is straightforward to calculate since you subtract the yield of one from that of the other in terms of percentage or basis points.
  • Yield spreads are often quoted in terms of a yield versus U.S. Treasuries, or a yield versus AAA-rated corporate bonds.
  • When yield spreads expand or contract, it can signal changes in the underlying economy or financial markets.
Our Courses are designed to boost your career

Launch your career with Fmi’s Learning Pathway

Choose a learning pathway that best meets your needs and ambitions. Not sure which Fmi learning pathway is right for you? Explore our CareerBuddy videos for help and advice.

Investment banking pathway
  • courses-clock60+ hours
  • courses-desktop9 courses

Investment banking offers many exciting career opportunities for students. From Financial Analysts to Investment Management, and Sales & Trading to a wide range of roles in infrastructure such as IT, Risk or Compliance. This pathway is designed to help you understand the investment banking industry, the roles investment banks are recruiting for, and most importantly, help you to develop the practical skills you need to get into the industry and your preferred role whether this be as part of a school leaver, intern or graduate program.

FMI Online Student join-student-img2 FMI Online Student
55,000+ students currently enrolled
Global markets pathway
  • courses-clock70+ hours
  • courses-desktop10 courses

Global markets provide a range of important products and services to corporates, institutions and governments worldwide from executing trades and managing risk to providing quality research content. A key business area in all investment banks, global markets offers a wide range of career paths for students to consider across all functions and at all levels from school leavers to internships through to graduate programs.

FMI Online Student join-student-img2 FMI Online Student
85,000+ students currently enrolled
Asset management pathway
  • courses-clock50+ hours
  • courses-desktop8 courses

The asset management industry is a global industry worth over 100 trillion US dollars. It plays a crucial role in managing the assets of retail and institutional investors, offering a wide range of exciting careers in doing so. If you’re looking to forge a career in asset management, our Asset management pathway is perfect for you. We help you build the skills all asset managers are looking for and explore everything you need to know about the industry and the wide range of roles available in the sector

FMI Online Student join-student-img2 FMI Online Student
100,000+ students currently enrolled