Credit Spread Calculator
From a bond yield and the risk-free rate, compute the credit spread (yield spread) that compensates for default risk.
Input Data
Results
At a glance:Credit spread = bond yield - risk-free rate; bps = spread% x 100. It is the extra yield investors demand for bearing default risk, using a same-maturity government bond as the risk-free base. Wider = higher perceived risk / risk aversion; narrower = stronger credit / appetite. Lower-rated (junk) bonds have larger spreads. WARNING: This is the simplest yield spread; Z-spread, OAS are finer; compare same-maturity issues or term premium contaminates. Education, not advice.
Formula
Credit spread = bond yield − risk-free rate.
Basis points = spread (%) × 100.
$$$Spread = Y_{bond}-Y_{riskfree}$$$$$$bps = Spread(\\%)\\times100$$$$$$6.5\\%-4\\%=2.5\\%=250\\text{ bps}$$$How to Use
- Enter the bond's market yield.
- Enter the same-maturity government bond yield.
- View the spread in percent and basis points.
FAQ
What is a basis point and why use it for spreads?
A basis point (bp) is 0.01% (1/10,000). 100 bps = 1%. We use bps because rate moves are tiny and bps avoid ambiguity — saying 'spread rose 50 bps' clearly means +0.5 percentage points, not +50%. It is the standard language for rate/spread quotes.
Why do spreads widen or tighten, and what do they signal?
Widening means investors see higher default risk or flee to safety, pushing risky-bond yields up and safe yields down (flight to quality). It is often a panic/credit-tightening warning. Tightening means stronger risk appetite and lower worry, common in recoveries. Spreads also move with an issuer's own rating changes.
Why must the maturities be similar when comparing spreads?
Yields include a term premium (longer maturities usually yield more). Subtracting a 2-year government yield from a 10-year corporate yield mixes in an 8-year term-premium gap, overstating the spread. Use a maturity-matched benchmark, or Z-spread/OAS that use the whole curve, to isolate credit risk.
How does spread relate to credit rating?
They are two sides of the same coin. Ratings (AAA, BBB, BB…) are slow, periodic judgements of default likelihood; spreads are fast, market-priced votes. Higher rating → smaller spread; lower (junk) → larger. Markets can lead ratings — spreads often widen before a downgrade.
Why compare spreads with similar maturities?
Because yield embeds a term premium (longer debt pays more for rate/inflation/liquidity risk). The spread's purpose is to isolate the credit-risk compensation, which requires a same- or near-maturity risk-free base. Mismatched maturities contaminate the spread with term-premium differences, making it meaningless. Use maturity-matched government bonds or curve-based Z-spread/OAS.
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References
Content review: Calculatorism Finance Team. Results are for reference only; please refer to the relevant authorities for the official figures.