Credit Spread is the difference in yield (interest rate) between two debt instruments, usually between a corporate bond and a government bond, reflecting the risk of default.
Credit Spread represents the extra return (risk premium) investors demand for taking higher risk when investing in corporate bonds compared to safer government bonds.
Higher credit spread means higher perceived risk, while lower spread indicates greater confidence in repayment.
Credit spreads are widely analyzed in bond markets and regulated under frameworks by the Securities and Exchange Board of India.
👉 Credit Spread = Yield of Corporate Bond – Yield of Government Bond
"If a corporate bond yields 8% and a government bond yields 6%, 👉 Credit Spread = 2% (or 200 basis points)"