The difference in interest rates between two bonds of similar maturity, usually a corporate bond and a government bond. This spread exists because corporate bonds are riskier than government bonds, so investors require higher interest rates as compensation. A wider spread means investors are more worried about company risk, while a narrower spread means they are more confident.
A 5-year Treasury bond pays 4% interest while a 5-year corporate bond from the same company pays 5.5% interest. The credit spread is 1.5 percentage points or 150 basis points. If the company's financial situation deteriorates, investors might demand 6.5% on the corporate bond, widening the spread to 2.5 percentage points.
Greater Fool is a free Chrome extension that explains terms like this in place. Highlight a word on any page, click Explain, keep reading.
Add to Chrome (free)