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Finance
Yield Spread
The difference in yield between two bonds, often used to measure credit risk or economic health.
Yield spreads are watched closely by investors. The TED spread (Treasury vs LIBOR) and corporate bond spreads are key indicators of financial stress. Narrow spreads mean calm markets; wide spreads mean fear.
It's the extra interest you get paid for taking more risk compared to the safest option.
Real world: The yield spread between UK government gilts and corporate bonds tells investors how worried the market is about company defaults. A widening spread means higher perceived risk.
💡 Yield spreads are the market's way of showing how nervous investors feel.