Kreditspreads

Credit spreads (Kreditspreads) are a key concept in fixed income and credit markets. They denote the extra yield that investors require to hold a bond or loan with credit risk relative to a risk-free benchmark, typically government bonds or interest-rate swaps. Spreads are usually quoted in basis points and can be expressed as absolute differences or as a proportion of the benchmark yield. The spread compensates for expected default losses, reduced liquidity, and other credit-market frictions. Wider spreads indicate higher perceived credit risk or lower liquidity, while narrower spreads suggest improving credit conditions or demand for riskier assets.

In practice, credit spreads are used to price corporate bonds, bank bonds, and structured products, and to compare relative value across issuers, sectors, and maturities. They contribute to the shape of the credit yield curve and to risk-management decisions. Spreads vary by issuer credit quality, sector, maturity, currency, and market liquidity, and can be influenced by macroeconomic news, rating changes, and liquidity conditions.

Beyond the fixed-income sense, the term also appears in derivatives. Credit-default swap (CDS) spreads denote the annual premium, in basis points, required to insure against a credit event. Widening CDS spreads reflect rising default risk or illiquidity, while tightening spreads imply reduced risk perception.

In options trading, a credit spread (also called a net credit spread) is a spread strategy in which an investor sells an option and buys another option at a different strike, resulting in a net credit to the trader. This approach limits risk and yields premium income.

See also: yield spread, credit rating, CDS, bond credit risk.