A Yield Spread refers to the difference in yield between two bonds or other fixed income securities with different maturities, credit ratings, or other characteristics. The yield spread is expressed in basis points (bps), which is equal to one one-hundredth of a percentage point.For example, if one bond has a yield of 3% and another bond has a yield of 4%, the yield spread between the two bonds would be 100 bps (4% - 3%). A bond with a lower credit rating will typically have a higher yield than a bond with a higher credit rating, and the difference between the yields is known as the credit spread. Similarly, bonds with longer maturities will typically have a higher yield than bonds with shorter maturities, and the difference between the yields is known as the term spread.Yield spreads can be an important tool for investors in fixed income securities, as they can help to assess the relative value of different bonds and to make informed investment decisions. In addition, yield spreads can be used to monitor market conditions and to make predictions about changes in interest rates.
