Spread

Spread is the difference in yield between two bonds of comparable maturity however unique credit quality. For instance, on the off chance that the 10-year Treasury note is trading at a yield of 2% and a 10-year corporate bond is trading at a yield of 4%, the corporate bond is said to offer a 200-basis-point spread over the Treasury.
Enlarging spreads demonstrate developing concern about the ability of corporate (and other private) borrowers to service their debt. Limiting credit spreads show working on private creditworthiness.

Features

• In finance, a spread alludes to the difference between two prices, rates, or yields
• Spread can likewise allude to the difference in a trading position - the gap between a short position (that is, selling) in one futures contract or currency and a long position (that is, buying) in another
• One of the most common types is the bid-ask spread, which alludes to the gap between the bid (from purchasers) and the ask (from dealers) prices of a security or resource

FAQ

What Is a Yield Spread?

A yield spread is the difference between yields on contrasting debt instruments of fluctuating maturities, credit ratings, issuer, or risk level, calculated by deducting the yield of one instrument from the other. This difference is most frequently communicated in basis points (bps) or percentage points. Yield spreads are commonly quoted in terms of one yield versus that of U.S. Treasuries, where it is called the credit spread.

What Is the Zero-Volatility Spread (Z-Spread)?

The zero-volatility spread (Z-spread) is the steady spread that makes the price of a security equivalent to the current value of its cash flows when added to the yield at each point on the spot rate Treasury curve where cash flow is received. It can tell the investor the bond's current value plus its cash flows at these points. The spread is involved by analysts and investors to discover disparities in a bond's price.

What Is Option-Adjusted Spread (OAS)?

The option-adjusted spread (OAS) measures the difference in yield between a bond with an embedded option, like a MBS, with the yield on Treasuries. It is more accurate than essentially contrasting a bond's yield with maturity to a benchmark. By separately analyzing the security into a bond and the embedded option, analysts can decide if the investment is beneficial at a given price.