Yield Spread

Yield spread is the difference in yields between two debt instruments—most commonly the spread between a corporate bond's yield and the yield of a comparable government security (G-Sec) of the same maturity. The spread compensates investors for taking on credit risk above and beyond the risk-free government bond. A wider spread indicates that the market perceives higher credit risk or lower liquidity in the corporate bond, while a narrowing spread suggests improving credit quality or increased investor appetite for the issuer's paper. In India, yield spreads on corporate bonds are closely monitored by fixed-income analysts to assess credit market conditions and identify relative value opportunities.