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Finance
Credit Spread
The extra yield (interest) that investors demand for holding a riskier bond instead of a safe government bond.
Credit spreads are watched closely by banks and investors. Narrow spreads mean calm markets and confidence. Wide spreads signal fear and higher chance of defaults. They are a key measure of financial stress.
It's the risk premium you get paid for lending money to a company that might go bankrupt instead of the government.
Real world: A safe UK government bond yields 4%. A risky company bond yields 7%. The credit spread is 3%. When spreads widen, it means investors are worried about company defaults.
💡 Credit spreads act as the market's fear gauge for corporate debt.