Yield Spread

Yield Spread
The difference between yields on differing debt instruments, calculated by deducting the yield of one instrument from another. The higher the yield spread, the greater the difference between the yields offered by each instrument. The spread can be measured between debt instruments of differing maturities, credit ratings and risk.

Looking at the yield spread, often with historical spreads, can give investors ideas for potential investment opportunities.

For example, if the five-year Treasury bond is at 5% and the 30-year Treasury bond is at 6%, the yield spread between the two debt instruments is 1% (6% - 5%). If the yield spread has historically been closer to 5%, the investor is much more likely to invest in the five-year bond compared to the 30-year bond (as it should be trading around 1% instead of 6%).

In other words, if the 30-year bond is trading at 6%, then based on the historical yield spread, the five-year should be trading at around 1%, making it very attractive at its current yield of 5%.


Investment dictionary. . 2012.

Игры ⚽ Нужно решить контрольную?

Look at other dictionaries:

  • Yield spread — In finance, the yield spread is the difference between the quoted rates of return on two different investments, usually of different credit quality.It is a compound of yield and spread.The yield spread of X over Y is simply the percentage return… …   Wikipedia

  • yield spread — The difference in yield between different security issues usually securities of different credit quality. Bloomberg Financial Dictionary * * * yield spread yield spread ➔ spread2 * * * yield spread UK US noun [C] ► ( …   Financial and business terms

  • Yield spread premium — The yield spread premium (YSP) is the cash rebate paid to a mortgage broker based on selling an interest rate above the wholesale par rate that the borrower qualifies for. For example, If a mortgage broker offers a borrower a loan of $100,000 at… …   Wikipedia

  • Yield Spread Premium — A form of compensation that a mortgage broker, acting as the intermediary, receives from the original lender for selling an interest rate to a borrower that is above the lender s par rate for which the borrower qualifies. The yield spread premium …   Investment dictionary

  • Yield spread strategies — Strategies that involve positioning a portfolio to capitalize on expected changes in yield spreads between sectors of the bond market. The New York Times Financial Glossary …   Financial and business terms

  • yield spread strategies — Investments that position a portfolio to capitalize on expected changes in yield spreads between sectors of the bond market. Bloomberg Financial Dictionary …   Financial and business terms

  • Relative yield spread — The ratio of the yield spread to the yield level. The New York Times Financial Glossary …   Financial and business terms

  • relative yield spread — The ratio of the yield spread to the yield level. Used for bonds. Bloomberg Financial Dictionary …   Financial and business terms

  • Yield curve spread — on a simple mortgage backed security (MBS) is the flat spread over the treasury yield curve required in discounting a pre determined coupon schedule to arrive at its present market price.That is, the MBS yield curve spread is based on a… …   Wikipedia

  • yield gap — ˈyield gap noun [countable] FINANCE the difference between the amounts of interest on two types of bonds: • The yield gap between the three month bill and the 30 year bond widened to 213 basis points from 212. * * *    Also known as yield ratio.… …   Financial and business terms

Share the article and excerpts

Direct link
… Do a right-click on the link above
and select “Copy Link”