The financial term, credit spread is the yield spread

Yield spread

In finance, the yield spread is the difference between the quoted rates of return on two different investments, usually of different credit quality.It is a compound of yield and spread....

, or difference in yield

Yield (finance)

In finance, the term yield describes the amount in cash that returns to the owners of a security. Normally it does not include the price variations, at the difference of the total return...

 between different securities, due to different credit quality. The credit spread reflects the additional net yield an investor can earn from a security with more credit risk

Credit risk

Credit risk is an investor's risk of loss arising from a borrower who does not make payments as promised. Such an event is called a default. Other terms for credit risk are default risk and counterparty risk....

 relative to one with less credit risk. The credit spread of a particular security is often quoted in relation to the yield on a credit risk-free

Risk-free interest rate

Risk-free interest rate is the theoretical rate of return of an investment with no risk of financial loss. The risk-free rate represents the interest that an investor would expect from an absolutely risk-free investment over a given period of time....

 benchmark security or reference rate

Reference rate

A reference rate is a rate that determines pay-offs in a financial contract and that is outside the control of the parties to the contract. It is often some form of LIBOR rate, but it can take many forms, such as a consumer price index, a house price index or an unemployment rate...

, typically either U.S. Treasury bonds or LIBOR.

There are several measures of credit spread, including Z-spread

Z-Spread

The Z-spread, ZSPRD or Yield curve spread on a simple mortgage-backed security is the flat spread over the treasury yield curve required in discounting a pre-determined coupon schedule to arrive at its present market price....

 and option-adjusted spread

Option-adjusted spread

Option adjusted spread is the flat spread which has to be added to the treasury yield curve in a pricing model to discount a security payment to match its market price. OAS is hence model dependent. This concept can be applied to a mortgage-backed security , option, bond and any other interest...

.

See also

• Credit (finance)
  Credit (finance)
  Credit is the trust which allows one party to provide resources to another party where that second party does not reimburse the first party immediately , but instead arranges either to repay or return those resources at a later date. The resources provided may be financial Credit is the trust...
  
  
• Credit risk
  Credit risk
  Credit risk is an investor's risk of loss arising from a borrower who does not make payments as promised. Such an event is called a default. Other terms for credit risk are default risk and counterparty risk....
  
  
• Yield curve spread
  Yield curve spread
  - In Economics :* Yield curve - The spread between long-term and short-term Treasuries* Z-spread - Also known as yield-spread curve, the flat spread over the treasury yield curve- In Materials Science :...
  
  
• Option-adjusted spread
  Option-adjusted spread
  Option adjusted spread is the flat spread which has to be added to the treasury yield curve in a pricing model to discount a security payment to match its market price. OAS is hence model dependent. This concept can be applied to a mortgage-backed security , option, bond and any other interest...
  
  
• TED spread
  TED spread
  The TED spread is the difference between the interest rates on interbank loans and on short-term U.S. government debt . TED is an acronym formed from T-Bill and ED, the ticker symbol for the Eurodollar futures contract....
  
  
• Credit spread (options)
  Credit spread (options)
  In finance, a credit spread, or net credit spread, involves a purchase of one option and a sale of another option in the same class and expiration but different strike prices. Investors receive a net credit for entering the position, and want the spreads to narrow or expire for profit...
  
  
• Yield spread
  Yield spread
  In finance, the yield spread is the difference between the quoted rates of return on two different investments, usually of different credit quality.It is a compound of yield and spread....