Yield Spread
Definition of 'Yield Spread'The difference between yields on differing debt instruments, calculated by deducting the yield of one instrument from another. The higher the yield spread, the greater the difference between the yields offered by each instrument. The spread can be measured between debt instruments of differing maturities, credit ratings and risk. |
|
Investopedia explains 'Yield Spread'Looking at the yield spread, often with historical spreads, can give investors ideas for potential investment opportunities.For example, if the five-year Treasury bond is at 5% and the 30-year Treasury bond is at 6%, the yield spread between the two debt instruments is 1% (6% - 5%). If the yield spread has historically been closer to 5%, the investor is much more likely to invest in the five-year bond compared to the 30-year bond (as it should be trading around 1% instead of 6%). In other words, if the 30-year bond is trading at 6%, then based on the historical yield spread, the five-year should be trading at around 1%, making it very attractive at its current yield of 5%. |
Related Definitions
Articles Of Interest
-
The Advantages Of Bonds
Bonds contribute an element of stability to almost any portfolio and offer a safe and conservative investment. -
The Impact Of An Inverted Yield Curve
Find out what happens when short-term interest rates exceed long-term rates. -
Interest Rates And Your Bond Investments
By understanding the factors that influence interest rates, you can learn to anticipate their movement and profit from it. -
Bond Basics Tutorial
Investing in bonds - What are they, and do they belong in your portfolio? -
How Risk Free Is The Risk-Free Rate Of Return?
This rate is rarely questioned - unless the economy falls into disarray. -
Top 4 Most Scandalous Insider Trading Debacles
Here we look at some of the landmark incidents of insider trading. -
Nobel Winners Are Economic Prizes
Before you try to profit from their theories, you should learn about the creators themselves. -
Perpetual Bonds: An Overview
A perpetual bond makes interest payments to the investor forever. This type of bond holds a certain appeal to both the issuer and buyer. -
Introduction To STRIPS
STRIPS provide an alternative form of bond for fixed-income investors who need definite cash flows at specific times. Read the article to find out how. -
The Wonders Of Convertible Bonds
Ever wondered what exactly a convertible bond does? Read the features of a convertible bond and learn how important the conversion factor is to you as an investor.
Free Annual Reports