What Is a Yield Spread?
A yield spread is the difference between the interest rates of two different debt instruments. The most common use of yield spreads is to compare yields on government bonds and corporate bonds. When the yield spread between two types of bonds is high, it usually means that investors believe that the company issuing the corporate bond is a greater risk than the government. This can be due to a number of factors, including the company’s credit rating and its financial stability.