Fixed Income Markets
Read a yield curve and credit spread
What you will learn
Separate the benchmark rate from the yield premium.
Credit spread = bond yield − matched benchmark yield
Compare yields at matched maturity and currency. The difference includes credit, liquidity and instrument features. A steep curve can mean that a maturity mismatch masquerades as a credit difference. Compare duration and option terms before reading the spread as evidence of changing credit quality. A fictional Indian issuer yields 8.4% against a comparable 7.1% benchmark. The spread is 130 basis points.
A fictional Indian issuer yields 8.4% against a comparable 7.1% benchmark. The spread is 130 basis points.
Compare yields at matched maturity and currency. The difference includes credit, liquidity and instrument features. A steep curve can mean that a maturity mismatch masquerades as a credit difference. Compare duration and option terms before reading the spread as evidence of changing credit quality. A fictional Indian issuer yields 8.4% against a comparable 7.1% benchmark. The spread is 130 basis points.
What does 150 basis points equal?