A credit spread is the difference between the yield on a bond that could default and the yield on a US Treasury security with the same maturity, usually quoted in basis points. Treasuries are backed by the full faith and credit of the US government, so the gap isolates what investors charge for lending to a weaker borrower: the chance of default, the cost of selling a bond that trades less often, and a premium for carrying both. For savers weighing a corporate bond fund against bills or insured deposits, the spread shows how much extra the step away from government credit pays; the safe investments hub covers the safer side of that trade-off.
How do you calculate a credit spread?
Subtract the yield of a same-maturity Treasury from the bond's yield, then multiply the gap by 100 to express it in basis points.
Three details decide whether the result means anything:
- Use yields, not coupons. Compare each bond's yield to maturity, which reflects the price you would pay today, rather than the coupon set when it was issued.
- Match the maturity. A 10-year corporate bond is measured against the 10-year Treasury. When no Treasury matures on the same date, read the yield off the curve at that point; the Treasury's daily par yield curve exists for this, giving a 10-year yield even when no security has exactly 10 years left.
- Strip out embedded options. Many corporate bonds can be called early by the issuer, which makes them worth less to the buyer. An option-adjusted spread (OAS) removes the value of that feature so callable and non-callable bonds compare fairly. The ICE BofA index spreads on FRED are option-adjusted and measured against a spot Treasury curve.
Worked example: A 10-year BBB corporate bond on October 30, 2026
Suppose a BBB-rated company's 10-year bond is quoted at a yield to maturity of 6.04% on October 30, 2026, when the 10-year Treasury par yield was 4.94%. That gap equals the 1.10-point spread on the ICE BofA BBB index the day before.
- Credit spread: (6.04 − 4.94) × 100 = 110 basis points
- Extra interest on $10,000 for a year, before tax: $10,000 × 1.10% = $110
- After a 5% state income tax, which Treasury interest does not pay: 6.04% × (1 − 0.05) = 5.74%, against 4.94% on the Treasury
- Spread after state tax: 5.74 − 4.94 = 0.80 point, or 80 basis points
In this case about 30 of the 110 basis points go to the state, so the reward for taking the credit risk is smaller than the headline spread.
How wide are credit spreads by rating?
On October 29, 2026, option-adjusted spreads ran from 0.46 percentage point for AAA corporate bonds to 13.25 points for bonds rated CCC or lower.
The figures are the ICE BofA US corporate index spreads for each rating bucket, as published on FRED. A bond's rating in these indices is the average of its Moody's, S&P and Fitch ratings, and investment grade means BBB or better.
| Rating bucket | Grade | Spread, October 29, 2026 | Basis points | Extra a year on $10,000 |
|---|---|---|---|---|
| AAA | Investment grade | 0.46 point | 46 | $46 |
| AA | Investment grade | 0.65 point | 65 | $65 |
| A | Investment grade | 0.74 point | 74 | $74 |
| BBB | Investment grade | 1.10 points | 110 | $110 |
| All investment grade | Index average | 0.89 point | 89 | $89 |
| BB | High yield | 1.94 points | 194 | $194 |
| B | High yield | 3.32 points | 332 | $332 |
| CCC and lower | High yield | 13.25 points | 1,325 | $1,325 |
| All high yield | Index average | 3.26 points | 326 | $326 |
Two features stand out. The single step from BBB to BB, 84 basis points, is wider than the whole climb from AAA to BBB, 64 basis points, because it crosses the line into speculative grade, where index membership changes: a downgrade to BB moves a bond out of the investment-grade index and into the high-yield one. And the CCC bucket pays about four times the single-B spread, because investors are pricing in a real chance that many of those issuers miss payments. A spread is payment for expected losses, not a bonus on top of a safe yield. How the letter grades are assigned is covered in credit rating.
What does a widening credit spread signal?
A widening spread means investors want more yield for holding credit risk, usually because they expect more defaults, value cash and Treasuries more, or both.
FINRA lists the usual causes: an issuer's finances weakening, investors pulling money out of bond funds, and harder economic times, when buyers move into Treasuries and push their yields down. Because a spread has two legs, it can widen when corporate yields rise, when Treasury yields fall, or both at once.
History shows how far spreads can travel. FRED's series of Moody's seasoned Baa corporate yields minus the 10-year Treasury starts in January 1986. It peaked at 6.16 points on December 4, 2008 and at 4.31 points on March 23, 2020, and its average across roughly 10,200 daily readings is about 2.26 points. On October 29, 2026 it stood at 1.49, a level matched or undercut on only about 1 trading day in 20 since 1986.
The ICE BofA series show how fast the moves can be. During a broad market sell-off, the high-yield spread went from 3.42 points on April 2, 2025 to 4.61 on April 7, three trading days later, the widest reading in FRED's current three-year window. More recently it widened from 2.60 on August 28, 2026 to 3.26 on October 29, while the investment-grade spread moved only from 0.79 to 0.89. The Federal Reserve's May 2026 Financial Stability Report described corporate spreads as roughly unchanged and at the low end of their historical range. None of these readings is a forecast: spreads describe today's prices, and they have stayed narrow for long stretches before moving abruptly.
Worked example: What a one-point widening does to a bond you own
You hold $10,000 face value of a BBB corporate bond, bought at par, with a spread duration of 6: its price moves about 6% for each percentage point change in its spread. Treasury yields stay where they are, but the bond's spread widens from 1.10 to 2.10 points.
- Approximate price change: −6 × 1.00 = −6%
- Market value: $10,000 × (1 − 0.06) = about $9,400
- Extra yield a new buyer now earns: 1 percentage point, or about $100 a year on $10,000
If the company keeps paying, the price drifts back toward face value as maturity approaches, and the paper loss disappears for a holder who waits. Sell before then and the $600 loss is real. The same duration arithmetic governs Treasury prices when rates move (why bond prices fall when rates rise; see also bond duration).
Where do you see credit spreads?
You meet credit spreads in new-bond pricing, bond fund yields, money market fund yields and Federal Reserve reports, even if you never buy a corporate bond.
- New corporate bonds. Underwriters commonly price a new issue as a spread over a benchmark Treasury, so the Treasury yield sets the base and the spread carries the issuer's credit.
- Bond fund yields. The gap between a corporate bond fund's yield and a Treasury fund's yield of similar duration roughly equals the spread the fund collects, before the defaults and fees it absorbs.
- Money market funds. Prime funds, which can hold commercial paper and bank debt, usually yield slightly more than government funds; that gap is a short-term credit spread, and how money market funds work explains the rules behind each type.
- Federal Reserve reports. The Financial Stability Report tracks corporate spreads and the excess bond premium, the part of spreads left over after controlling for bond characteristics and credit quality, as a gauge of investors' appetite for risk.
How is a credit spread different from other spreads?
A credit spread compares two borrowers at one maturity; a yield curve spread compares two maturities from one borrower; a bid-ask spread is a trading cost.
| Term | What it compares | Dated example | What it tells you |
|---|---|---|---|
| Credit spread | A bond with default risk vs a Treasury of the same maturity | BBB index: 1.10 points, October 29, 2026 | The price of default and liquidity risk |
| Option-adjusted spread | The same, after removing the value of call and other embedded options | High-yield index: 3.26 points, October 29, 2026 | A like-for-like spread for callable bonds |
| Yield curve spread | Two Treasury maturities | 10-year minus 2-year: +0.38 point, October 30, 2026 | How the market prices longer-term lending to the government |
| Bid-ask spread | The buying and selling price of one security | Varies by trade | The cost of trading and how liquid the market is |
| Options credit spread | Two options, one sold and one bought | Not a yield | A trading strategy that collects a net premium |
The Treasury leg of every credit spread is the benchmark described in what is the risk-free rate?, and the gap between short and long Treasuries is tracked on the Treasury yield curve page. The trading-cost meaning has its own entry, bid-ask spread, and the options strategy is introduced in options basics.
What mistakes do people make with credit spreads?
The most common mistake is measuring against a Treasury of a different maturity, which passes off part of the normal extra yield on longer bonds as credit risk.
- Mismatched maturities. FRED's popular Baa-minus-10-year series is an example, because Moody's Baa average is built from bonds with 20 or more years to maturity. On October 29, 2026 the Baa yield of 6.47% was 1.49 points above the 10-year Treasury at 4.98% but only 1.12 points above the 20-year at 5.35%, so about a quarter of the headline figure reflected maturity rather than credit.
- Treating a wide spread as free money. The CCC bucket's 13.25 points pays for expected defaults. After losses, a holder can end up earning far less than the spread implied, or losing principal.
- Forgetting taxes. States tax corporate bond interest but not Treasury interest, which shrinks the after-tax spread, as the first example shows. The rules are set out in are T-bills taxable?
- Reading spread moves as yield moves. A bond's yield is the Treasury yield plus the spread. Spreads can narrow while yields rise, if Treasury yields climb faster, and the bond's price still falls.
- Confusing a tight spread with low risk. A narrow spread means investors are being paid less to carry credit risk, not that the risk has gone. The May 2026 Fed report paired spreads near the low end of their range with growing credit concerns for riskier debt.
Credit risk is one of several risks a bond can carry, alongside interest-rate, liquidity and inflation risk, all compared in types of investment risk. To see what an extra 1.10 points a year adds up to over a decade, enter both rates in the compound interest calculator.