What it is
This spread compensates investors for the additional credit risk (the risk of default) associated with corporate or other non-Treasury bonds compared to the virtually risk-free U.S. Treasury securities. The spread is typically measured in basis points. A wider spread indicates higher perceived risk, while a narrower spread suggests lower perceived risk.
Credit spreads are a key indicator of market sentiment and economic health. During periods of economic stress or uncertainty, investors demand higher compensation for risk, causing credit spreads to widen. Conversely, in times of economic optimism, spreads tend to narrow. Widening spreads can signal impending economic downturns or financial instability.
Why it matters
Credit spreads reflect market confidence in the economy and corporate health; widening spreads often signal increased risk and potential economic weakness.
Reviewed under editorial standardsUpdated September 26, 2026Not investment advice