Credit Spread Calculator
Calculate the credit spread between a corporate bond and a Treasury of equal maturity.
Measures default risk premium in basis points across rating categories.
Credit Spread
The credit spread is the difference in yield between a corporate bond and a risk-free government bond (US Treasury) of the same maturity. It represents the extra return investors demand as compensation for taking on the risk that the corporate issuer might default.
Formula:
Credit Spread = Corporate Bond Yield - Treasury Yield (same maturity)
Typically expressed in basis points (bps): 1% = 100 bps
Typical credit spreads by rating (as general benchmarks):
| Rating | Category | Typical Spread |
|---|---|---|
| AAA / Aaa | Highest quality | 20 – 60 bps |
| AA | Very high quality | 40 – 100 bps |
| A | High quality | 80 – 150 bps |
| BBB | Investment grade | 120 – 250 bps |
| BB | High yield (junk) | 200 – 400 bps |
| B | Speculative | 350 – 600 bps |
| CCC | Very speculative | 600 – 1500+ bps |
Spreads fluctuate dramatically with economic conditions — during recessions or crises, even investment-grade spreads can widen 2–3x.
What drives credit spreads:
- Credit rating of the issuer
- Time to maturity (longer = more uncertainty = wider spread)
- Liquidity of the bond
- Economic conditions and recession risk
- Industry-specific risks
- Company-specific financial health
Spread widening vs tightening:
- Widening spreads: investors perceive more default risk — usually happens during recessions, earnings disappointments, or credit downgrades
- Tightening spreads: investors are more confident — occurs during economic expansions or when a company improves its finances
Using spreads to compare bonds: Two bonds with the same maturity can be compared purely by their spread over Treasuries — the one with the wider spread offers more yield but carries more risk.
The spread-to-maturity curve: Spreads are not flat across maturities. Typically short-term spreads are narrower because near-term default risk is more predictable. Longer maturities carry wider spreads due to greater uncertainty.