Definition Bond Yield Spread

For example you can calculate the yield spread on two bonds by subtracting the yield on one bond from the yield on the other.

Definition bond yield spread. Mathematically a bond spread is the simple subtraction of one bond yield from another. Meaning of yield spread. If one bond is yielding 5 and another 4 the spread is one percentage point. Yield spread is helpful in comparing bonds with different maturities credit ratings and tax status.

What is the definition of yield spread. For instance the yield of a municipal bond is 7 50 and the yield of a corporate bond is 8 50. For example if a certain bond with a 10 year maturity yields 8 and a comparable bond from the same issuer with a 5 year maturity yields 5 then the term premium between them may be quoted as 8 5 3. Yield spread is the difference between the yield to maturity on different debt instruments.

The yield spread is one of the key metrics that bond investors can use to gauge how expensive or cheap a particular bond or group of bonds might be. The yield spread is a key metric that bond investors use when gauging the level of expense for a bond or group of bonds. Very simply the yield spread is the difference in the yield between two bonds. Bond yield is the internal rate of return of the bond cash flows.

The phrase is a compound of yield and spread. Bond spreads reflect the relative risks of the bonds being compared. Common examples of yield spreads are g spread i spread zero volatility spread and option adjusted spread. How does yield spread work.

Bond spreads are the common way that market participants compare the value of one bond to another much like price earnings ratios are used for equities. For example if one bond is yielding 7 and another is yielding 4 the. What does yield spread mean. 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.

It is often an indication of the risk premium for one investment product over another. In finance the yield spread or credit spread is the difference between the quoted rates of return on two different investments usually of different credit qualities but similar maturities. Yield spread describes the difference between the yields on two different debt instruments.