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.
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This calculator runs entirely in your browser, so the numbers you enter stay on your device. The math behind it is written by hand and tested against worked examples and standard references before the page goes live.
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