Credit Spread
The yield premium over Treasuries that corporate bonds offer — compensation for default risk, downgrade risk, and illiquidity.
Definition
Credit spreads are quoted as option-adjusted spread (OAS) for cash bonds or as CDX index levels for derivatives. IG spreads (Bloomberg US Corporate OAS) and HY spreads (ICE BofA US HY OAS) are the standard benchmarks.
Spreads widen in risk-off and tighten in risk-on, often with leads or lags vs equity that institutional desks watch carefully.
Why it matters
Credit spreads price the real-economy risk that equity often ignores. They're the most reliable cross-asset stress gauge.
Worked example
March 2020: HY OAS widened from ~360bp to ~1,100bp in three weeks. The Fed's announcement of the SMCCF credit facility on March 23 capped the move and triggered a violent reversal.
Frequently asked
What's a normal IG spread?⌄
What's a normal HY spread?⌄
Why do spreads lead equity?⌄
How do you hedge credit?⌄
Track it on Market Ontology
Related terms
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