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Credit spreads - MoneyWeek Investment Tutorials


Alternatively, one could make a bet on the spread widening between Bunds and Spanish yields. The trade would stand to benefit from the greater vulnerability of the bond markets in the periphery countries compared to Bunds to any further back-up of US Treasury yields, Mr Karydakis concludes.

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The danger to these trades of course might be if the ECB proves less dovish than expected next month.

vampiresandslayers.comlmvampiresandslayers.com Get alerts on Central banks when a new story is published. Copyright The Financial Times Limited. Widening spreads typically lead to a positive yield curve, indicating stable economic conditions in the future.

Conversely, when falling spreads contract, worsening economic conditions may be coming, resulting in a flattening of the yield curve. A credit spread reflects the difference in yield between a treasury and corporate bond of the same maturity. It also refers to an options strategy. A bond credit spread reflects the difference in yield between a treasury and corporate bond of the same maturity.

Debt issued by the United States Treasury is used as the benchmark in the financial industry due to its risk-free status being backed by the full faith and credit of the U.S. The widening is reflective of investor concern. This is why credit spreads are often a good barometer of economic health - widening bad and narrowing good. Credit spreads are larger for debt issued by emerging markets and lower-rated corporations than by government agencies and wealthier andor stable nations.

Spreads are larger for bonds with longer maturities. A credit spread reflects the difference in yield between a treasury and corporate bond of the same maturity. I recently decided to bet on eventual normalization in spreads by going long Treasuries and short high-yield B-rated average credit when the spread fell to bps bp long-run average.

I run through potential catalysts and risks, in addition to viable instruments that can be traded to capture this idea. There is no particular immediate catalyst behind this idea outside of the fact that credit spreads should widen over time. No net capital outlay is required as one is buying equal monetary amounts of both assets the short side provides an account credit which can be applied to fund the long side.

So therefore time sensitivity is mostly a non-factor as there's no significant risk of capital "rotting" and not making a return because there is no foreseeable market-altering event on the horizon. Bond spreads are the common way that market participants compare the value between separate bonds. Find out more about what are bond spreads here.

Bond spreads reflect the relative risks of the bonds being compared. The higher the spread, the higher the risk usually is. People referring to bond spreads are generally talking about comparing the yields on federal government bonds, generally considered a country’s most creditworthy bonds, to the bonds of other issuers such as provinces, municipalities or corporations. Bond spreads can also be calculated between bonds of different maturity, interest rate coupon or even different countries and currencies. A Spread bets on bond futures are quoted with reference to the equivalent expiry contract on the underlying futures market.

We do not apply any weighting or biases to our pricing sources. B Spreads are subject to variation, especially in volatile market conditions. Our dealing spreads may change to reflect the available liquidity during different times of day. Our normal spread is shown in the table. This is because contracts can become illiquid as they approach expiry and market spreads can widen considerably.

For guaranteed stop premium bets a guaranteed stop premium is charged if your guaranteed stop is triggered. The potential premium is displayed on the deal ticket, and can form part of your margin when you attach the stop. At long last, high-yield bond spreads have started to rise. While the 85 basis points of spread widening still does not get high-yield spreads to a level I would categorize as attractive, it does move us from what I would call overly rich to just slightly rich levels.

There are two additional things worth noting concerning the recent spread widening. First, although the most recent bottom occurred on May 9, of the move higher happened in the seven trading days immediately after May In other words, the broad-market high-yield spread widened 73 basis points in just seven days.

But while that may sound like a big move for such a short per.

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Bond spread refers to the difference between the interest rates of two bonds.

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This is a Bond spreads, and particularly credit spreads, are related to the perceived risk of investing in a bond.

That is, the risk that the issuer the foreign entity or corporation that backs the bond will not make payments on that bond as promised. As the risk increased, the credit spread also increases.

Spreads are then higher for less reliable corporation and developing nations.[10]. Determine the credit spread for a bond you are considering investing in. If the bond spreads are increasing widening for one of them, this means that the industry is outperforming others.[14]. Use credit spreads as part of a trading strategy. High-yield bond spreads widened on Wednesday following the inversion by 24 basis points representing a mini selloff but still 15 to 32 basis points below the steepest widening periods of the past decade, according to JPMorgan Chase data.

Bond prices rise as yields fall. A flight to the perceived safety of fixed-income, including Treasurys, continued apace Thursday, with the year Treasury note yield TMUBMUSD30Y, edging below 2 and carving out a fresh yield low for the so-called long bond. Read year Treasury yield breaks below 2. High-yield is often considered another canary. Credit migration risk or downgrade risk refers to the risk that a bond issuer's creditworthiness may deteriorate or migrate lower.

The result is that investors view the risk of default to be higher, causing the spread on the issuer's bonds to widen. Stedsmart Ltd and Fignermo Ltd are alike with respect to financial and operating characteristics, except that Stedsmart Ltd has less publicly traded debt outstanding than Fignermo Ltd.

Therefore, Stedsmart Ltd is most likely to have. Chief Global Strategist Michael Purves discusses discusses the bond markets, European economy and Fed policy. He speaks on Bloomberg Surveillance. That is on until the debt leverage - olivia mark zuckerberg at. And German Bond Spreads Are Widening.

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Asian bond spreads widened on Wednesday for a second session on the back of data showing rising inflationary pressures in the United States and continued concerns about the health of the global financial sector. Regional spreads are unlikely to tighten in the near term, traders said, given the continued risk aversion and what could be a heavy slate of new debt sales in September.

South Korea mandated six banks for a planned sovereign debt sale that could reach 1 billion, while Wing Hang Bank HK is meeting Asian investors this week for a potential dollar bond sale, sources told Reuters on Wednesday. When yield spreads widen between bond categories with different credit ratings, all else equal, it implies that the market is factoring more risk of default on the lower-grade bonds.

For example, if a risk-free year Treasury note is currently yielding 5 while junk bonds with the same duration are averaging 7, then the spread between Treasuries and junk bonds is 2. If that spread widens to 4 increasing the junk bond yield to 9, then the market is forecasting a greater risk of default, probably because.

Of weaker economic prospects for the borrowers.

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A narrowing of yield spreads betwe. Credit spreads widen when U.S. Treasury markets are favored over corporate bonds, typically in times of uncertainty or when economic conditions are expected to deteriorate.

The spread measures the difference in yield between U.S. Treasury bonds and other debt securities of lesser quality, such as corporate bonds. Maley does not see a repeat of when credit spreads were far higher than their current levels nor does he foresee levels seen during the financial crisis in However, widening credit spreads still act as a leading indicator for asset prices and are a signal worthy of attentio.

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Natural Gas When Betting On Winter Weather Feels Like Betting On U.S.-China Deal. With both main parties aiming to ramp up spending after next month’s election, a bond market spread is likely to widen no matter which side wins.

Whoever forms the next government, there is an increased risk of a swelling budget deficit that would be funded by extra borrowing in the bond market. That is likely to hurt gilts and widen their spread against interest-rate swaps.

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If Boris Johnson’s ruling Conservatives win as polls suggest, they will look to end a decade of austerity. Victory for Jeremy Corbyn’s Labour party would open up the spending taps further and also risk capital flight that. The negativity around HY bonds is also demonstrated by widening bond spreads.

One trend in particular has been the pronounced widening seen in HY CCC rated credits. This segment has seen its spread over treasuries reach 1,bps as of yesterday's close, according to the Markit iBoxx USD Liquid High Yield CCC Index. To put this figure into context, the last time the 1,bps level was breached was over three years ago in Both indexes have seen bond spreads widen since mid-May, but looking back over a one year period shows that IG credit has actually been on a prolonged risk off trend since mid The latest spread over treasuries, bps, is the widest since August and wider than in mid.

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Bonds and stocks now yield very different returns in the world’s richest countries, and the divergence may well be pointing to a likely global recession that would rout equities. A full-blown recession in the West now has a one-third probability, the likelihood rising about five times in just more than a year, even as the spread in returns on stocks and bonds widens to unsustainable levels.

That would mean an imminent equities crash unless earnings improve, increase investor appetite for risk assets, and hold down stock dividend yields.

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About trillion of global bonds now yield negative r. Investors consider a widening spread between a corporate and government bond as negative. A downgrade in the company's credit rating can lead to a widening spread. When a credit rating agency downgrades a corporate bond, it means the company's risk of defaulting on its debt payments is greater than it was before.

The price of the bond then decreases and it becomes less valuable. Bonds with widening spreads are less attractive to investors because they carry increased investment risk. Certain economic conditions factor into corporate bond spreads. When inflation is on the rise, the cr. And more specifically, bond yield spreads. When risk appetites are on, investors seek out the higher yield of riskier corporate debt and ignore the safer but lower yielding Treasuries.

When risk is rising, the trend reverses as high yield prices relative to Treasuries drop and traders seek safe havens. Bond yield spreads as illustrated in the chart below show risk is rising. We often look at the ratio of HYG iShares iBoxx High Yieid Corp Bond ETF to IEF iShares Year Treasury Bond ETF and use a set of moving averages to smooth the trend. As the ratio drops and credit spreads widen, t. Learn how bond spreads and expectations for interest rate changes can tell you where currency pairs are headed.

How Bond Spreads Between Two Countries Affect Their Exchange Rate. The bond spread represents the difference between two countries’ bond yields. These differences give rise to carry trade, which we discussed in a previous lesson. By monitoring bond spreads and expectations for interest rate changes, you will have an idea where currency pairs are headed.

Here’s what we mean As the bond spread between two economies widens, the currency of the country with the higher bond yield appreciates against the other currency of the country with the lower bond yield.

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Credit Bonds typically the spread is the credit spread and it is effectively an asset swap versus swaps. Credit bonds usually have higher yields than swaps and so widening means that the bond gets cheaper relative to swaps. Inflation Bonds There is a term called the breakeven spread which refers to the yield on nominal bonds minus the yield on equivalent maturity inflation bonds. It is generically the expected level of inflation until that maturity, called breakeven since if that is in fact the realised level of inflation the two bonds will have been worth the same, held to maturity. The spread of investment-grade corporate bond yields over Treasuries has jumped to a two-year high this past week and the Federal Reserve is largely to blame.

With Fed officials signaling they will raise interest rates as early as this month, many investors have been scared away from bond purchases. And corporations want to lock in the lowest possible borrowing costs before the Fed makes any moves. Many of both types of deals are financed by bonds. Mikkelsen says the widening spread will make companies think twice about issuing new debt, however.

If you’re doing MA, it will be much more expensive to finance it with debt, so there will be a shift toward more equity, he maintains. For companies issuing bonds to buy back shares, that becomes much less favorable.

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Credit spreads and yield curves are both somewhat choppy on a day-to-day and month-to-month basis. What we are interested here is not so much the exact state of the market on any given day but rather the overall climate.

As such, to see the relationship between credit spreads and the yield curve, we smooth them both by taking a day two year moving average and then put the results into an X to Y scatterplot.

The result is quite extraordinary almost perfectly consistent counter-clockwise motion.

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The yield curve still had some steepness but was on a flattening trajectory. In March, the Fed hiked rates once to and shortly thereafter the first signs of trouble appeared. HSBC convertible-bond traders slowed their trading activities to a crawl for several hours by quoting unrealistically wide spreads in a move seen as expressing discontent about their bonuses.

News Corp is a network of leading companies in the worlds of diversified media, news, education, and information services.

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Spread betting is a tax-efficient, flexible way of trading on the price movements of thousands of global financial instruments. You take a position based on whether you think the price of an instrument will rise or fall, and your profit or loss depends on if the market moves in your chosen direction or not.

Spread betting is a leveraged product, meaning you only need to deposit a percentage of the full value of your trade to open a position. Your profits and losses are amplified as they are based on the full value of your trade.

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Therefore, you could lose all of your capital. While price gains on bonds can sometimes rival those of stocks, that generally happens only when interest rates are falling, and rates are more likely to rise today, causing bond values to fall.

But investors with a taste for the wild side can make money betting against bonds, profiting when prices go down as you might do by short selling or buying "put" options on stocks.

Generally, it's a game for sophisticated traders, but it's become easier for small investors in recent years with the growth of exchange-traded funds that own bonds. So, if you think interest rates are li. Compare spread betting platforms and the brokers who offer them. Compare the costs, spreads, offers and features that each of these companies offer. Our broker reviews could help you decide which broker is best for you. We only feature Spread Betting Brokers authorised and regulated by the FCA where client funds are protected under the FSCS.

CFDs and spread bets are complex instruments and come with a high risk of losing money rapidly due to leverage.

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Spread-widening of comparable magnitude to those two episodes, accompanied by a declining bond yield, preceded the recession, as well. That combination of trends, however, occurred well before the recession began. In between, from October to July, the bond yield rose and the credit spread declined.

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Bond Yields and Credit Spreads. In short, a comprehensive analysis encompassing both yields and spreads provides no support for the most pessimistic forecasters’ view that the U.S.

Is on the verge of a recession. When conclusion-trolling the financial markets for clues to future economic performance, it makes sense to consider signals from both the stock market and the bond market. Bond spreads refer to the yield differential between one bond instrument and another, and such spread would serve to signal changing market and economic conditions.

Below is a chart that shows the following 5 year swap rate this is a fixed in If the transaction is large enough, it can push Intel bond yields higher and push Treasury yields lower, thus widening the spread between Intel bonds and safe haven securities.

K views View 10 Upvoters Answer requested by. Related QuestionsMore Answers Below. Should you sell bonds when interest rates rise? Is a higher yield to maturity better.

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Yield-spread premiums is what creditors call them. Customer groups call them authorized kickbacks. Yield spread premiums are the money that mortgage dealers or lenders get for directing a debtor into a home loan with a higher interest rate. Yield spread premium is the commission fee paid to the dealer by the mortgage lender in exchange for a higher interest rate or a beyond market mortgage rate.

In industry’s, yield spread premium is known as YSP’. Yet the debtor may be suitable for a mortgage at a definite interest rate, the dealer or loan officer can charge this payment and give the deb.

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A credit spread is the difference in yield between two bonds of similar maturity but different credit quality. For example, if the year Treasury note is trading at a yield of 6 and a year corporate bond is trading at a yield of 8, the corporate bond is said to offer a basis-point spread over the Treasury. Widening credit spreads indicate growing concern about the ability of corporate and other private borrowers to service their debt.

Narrowing credit spreads indicate improving private creditworthiness. Definitions of Financial Terms.

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Corporate bond spreads worldwide have widened markedly since the beginning of the credit crisis in This article examines default and liquidity risk-the main components of the corporate bond spread-for Canadian firms that issue bonds in the U.S. Market, focusing in particular on their evolution during the credit crisis.

They find that, during this period, the liquidity component increased more for speculative-grade bonds than it did for investment-grade bonds, consistent with a "flight-to-quality" phenomenon. An important implication of their results for policy-makers seeking.

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Guatieri noted the widening spread in the yields of French and German bonds, though part of that is a flight to safety into Germany. The European Central Bank again today purchased Italian and Spanish bonds in an ongoing effort to stop the crisis from spreading further. While France shows no signs yet of succumbing to the debt troubles, it is unsettling to watch as the virus jumps from border to border.

"The ECB's purchases of Spanish and Italian bonds this week have greatly lowered government borrowing costs, stemming contagion fears," Mr.

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Spread size plays an important role in trading, especially for scalpers and intraday traders. Most favorable conditions are usually offered on STP and ECN accounts. Occasionally, you can even catch a glimpse of a zero spread on EURUSD. Nevertheless, keep in mind that spreads get wider at low liquidity periods of time and on market news releases.

Furthermore, the broker may charge an additional commission everytime you open or close a trade. On currency pairs, it usually stays around USD per side, for every lot traded.

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Sentence examples similar to bond spreads widened from inspiring English sources. Corporate-bond spreads widened in other words, their prices dropped. Austria had also seen its bond spread widen because of fears about its banks' exposure to Eastern Europe.

"Our bond spreads are widening again today, showing that this plan won't shield us from the crisis," Mr. Bersani added, referring to signs that investors' confidence in Italy was still shaky. vampiresandslayers.com Trusted already by 8 million users, Ludwig is designed to help anyone write better in English. Sign up for free or try Premium free for 15 days.

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Dude, uh, it was widening bond spreads in 98 that did in JM and the boys. Quote from LeonPhelps Read Lowenstein's book. Pairs trading between and year bonds, foriegn debt, a short squeeze, all sorts of stuff. You must log in or sign up to reply here.

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Spread between corporate and government bonds wideningBanking is the one sector that remains bondholder-friendlyThe increased spreads suggest that the credit cycle - a measure of the ease and.

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Financial spread betting with Spreadex, the spread betting experts with superior service since Open an account to trade indices, shares, FX more. Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 55 of retail investors lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money.

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High-yield bond spreads can be an effective complacency and bubble indicator and are currently sounding the alarm of excessive investor complacency. In today’s piece, I will discuss high-yield bond spreads and how they can be an effective complacency indicator.

High-yield or junk bond spreads are the percentage difference between high-yield or junk bond corporate bonds that are beneath investment grade yields and investment grade corporate bonds or U.S.

As the name indicates, high-yield bonds have higher yields than safer investment grade bonds to compensate investors for their higher risk.

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Lower-quality bonds have higher spreads, and the wide spread can often act as a buffer against rate increases. In addition, as rates increase, credit spreads tend to compress. In some quality spectrums, the compression overcompensates the rate increase, resulting in a lower overall yield and a higher overall price. In effect, the compensatory action of spreads insulates the impact of rate hikes.

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Well, the spread between the US year government bond and the comparable Indian security has actually risen over the past month or so. The spread of the yield on Indian five-year government bonds and the US ones, however, has moved down rather steeply. Since mid-October while the US bond yields have climbed up, Indian year bond yields have risen even faster. Five-year spreads have been going down, but that’s because the market dynamics are different here.

Bond traders say that the US yield curve is steeper because it reflects a term premium year yields are higher than five-year ones, while the Indian yield curve is much flatter. Also, since October, the yield on US five-year Treasury bonds has moved up sharper than the yield on year bonds.

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Widening spreads usually indicate increased risk for bond investors, though with improving economic fundamentals, we believe the recent increase in spreads has to do with investor jitters over the Treasury rate increase, not a changing outlook for corporations. The recent spread-widening in high yield did not indicate underperformance versus Treasuries, however.

For the two-month period from May through June, high-yield returns, as measured by the BofA Merrill Lynch US Cash Pay High Yield Index were ahead of both Treasuries for the Barclays U.S.

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The bull call spread strategy will result in a loss if the stock price declines at expiration. Maximum loss cannot be more than the initial debit taken to enter the spread position. The formula for calculating maximum loss is given below Max Loss Net Premium Paid + Commissions Paid.

Max Loss Occurs When Price of Underlying is achieved for the bull call spread position can be calculated using the following formula. Breakeven Point Strike Price of Long Call + Net Premium Paid.

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DUBAI- Spreads for Saudi Arabia's international bonds widened slightly in early London trade on Monday in response to the government's anti-corruption crackdown, which has detained dozens of people from the kingdom's political and business elites.

The spread on the Saudi year sovereign bond maturing in widened about 5 basis points. Traders said activity was quiet and there was no panic some foreign funds sold at the long end of the curve, where their investment is concentrated, while Gulf regional investors held on to their positions.

The Saudi riyal weakened marginally.

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Spread betting the financial markets can seem confusing without prior knowledge. But it doesn't have to be this way. Find out how spread betting works. If you are betting on the price of the asset going down, then you sell short at the sellbid price, which will always be the lower price quoted in the spread.

Let’s look at an example to see how spread betting works in practice.

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Bond proceeds frequently ended up buying back shares or boosting dividends, thus elevating the stock market on the back of heavier debt levels on corporate balance sheets. Now, with commodity prices resuming their plunge and currency wars spreading, concerns of financial contagion are back in the markets and spreads on corporate bonds versus safer, more liquid instruments like U.S.

Treasury notes, are widening in a fashion similar to the warning signs heading into the crash. The trillion junk bond market high-yield as well as the investment grade market have seen spreads widen as o So buckle up tight and hold on for your life, because we are in for one wild ride.

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Many translated example sentences containing "bond spread" Spanish-English dictionary and search engine for Spanish translations. Within the euro zone, sovereign spreads versus German bunds continued to widen, as Portuguese and Spanish credit ratings have been put on negative watch by SP.

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In, corporate bond spreads appear to have bottomed and emerging market bond spreads are starting to rise, foreshadowing a moderation in FDI flows. The real test of a currency's success is the degree of confidence in the market, and that is measured in this case by the bond spreads between euro-zone states.

The last time I looked, the bond spread between Greece and Germany was over basis points. 9 Because market-makers will widen their quoted spreads with an increase in interest rate volatility or risk, which increases their inventory-risk-management costs, it is not surprising to see that the large transitory spikes in the spreads for treasury bills and bonds in Charts 2 and 4 coincide with sudden increases in short- and long-term interest rates, respectively.

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When yield spreads widen between bond categories with different credit ratings, all else equal, it implies that the market is factoring more risk of default on the lower-grade bonds.[1] For example, if a risk-free year Treasury note is currently yielding 5 while junk bonds with the same duration are averaging 7, then the spread between Treasuries and.

If that spread widens to 4 increasing the junk bond yield to 9, then the market is forecasting a greater risk of default, probably because of weaker economic prospects for the borrowers. Yield spread can also be an indicator of profitability for a lender providing a loan to an individual borrower.