Bond Yield Spread
A bond yield spread is the difference in yield between two debt securities of similar maturity.
Meaning in Practice
Yield spreads often compare government bonds with different maturities or credit qualities. They reflect market perceptions of risk, inflation, and monetary policy. Spreads are closely monitored in fixed income markets.
Why It Matters
Changes in spreads signal shifts in credit risk and economic expectations. A widening spread may indicate rising risk aversion or economic uncertainty. An inverted yield curve spread can precede economic slowdowns.
Market Impact
Widening spreads can pressure equities and support safe-haven assets. Narrowing spreads often reflect improved confidence and stable growth. Currency markets may react to relative yield differentials.
Example
If the yield on a 10-year bond rises to 4 percent while a 2-year bond yields 3 percent, the spread is 1 percentage point.