Credit spread is the yield difference between two bonds of similar maturity but different credit quality. Typically, it measures the difference between a corporate bond's yield and a comparable government bond (considered risk-free).
Credit spread is measured in basis points (bps), where 1 basis point equals 0.01%. A corporate bond yielding 7% versus a government bond at 5% has a credit spread of 200 bps.
Widening spreads indicate investors are demanding more compensation for risk — typically signaling economic downturn or financial instability. Narrowing spreads suggest investor confidence and stability.
In Bangladesh, credit spread is often viewed through the lens of the banking system's interest rate spread — the difference between deposit rates and lending rates.