CreditSpreads

What Is a Credit Spread?

A credit spread is the difference in yield between a safe bond (like a U.S. Treasury) and a riskier bond (like a corporate bond).

Key Points:

Bigger spread = higher risk.

Smaller spread = more confidence in the economy.

Credit spreads change due to credit ratings, interest rates, market mood, and bond liquidity.

Example:

Treasury bond: 3%

Corporate bond: 5%

Credit spread = 2%

When the economy is strong, spreads are small. In uncertain times, spreads grow.

In Options Trading:

A credit spread means selling one option and buying another, so you start with a net credit (profit).

Two common types:

Bull Put Spread: Expect price to stay the same or go up.

Bear Call Spread: Expect price to go down or stay below a certain level.

Example:

Sell $55 call for $400

Buy $60 call for $150

Net credit = $250, and your maximum loss is also $250

Summary:
Credit spreads help measure risk and market sentiment — useful for both bond and options traders.
#CreditSpreads #spread