Credit spreads are the differences in yield between various types of bonds with similar maturities but differing credit quality.

They are crucial in the assessment of the investment landscape, reflecting the premium investors demand for taking on higher credit risks compared to “risk-free” government bonds.

Credit spreads matter because they serve as a barometer for the level of risk tolerance in the debt market.

Narrow spreads indicate a healthy economy with optimistic credit conditions, while wide spreads point to increased risk aversion, often due to concerns about economic stability or corporate financial health.

Recession Signal

A widening of credit spreads can signal a recession as it reflects investor concern about the ability of corporate borrowers to service their debt. In tough economic times, investors flock to the safety of government debt, driving up the yields on corporate bonds in relation to treasuries.

Track this Yourself

We are unsure of the best, free, data source for this metric, and rely on the updates from Clear Bridge and their Anatomy of a Recession.