5. Credit Risk vs. Return: Yields and Spreads
i. describe factors that influence the level and volatility of yield spreads;
What is Yield spread?
Yield spread is the difference in yield between two securities.
How do you measure the yield spread of a corporate bond?
The yield of a corporate bond = yield on a risk-free bond + yield spread
What is a credit curve?
A credit curve is essentially the spread over treasuries of various maturities for a single bond issuer. It is typically upward-sloping, meaning the longer the bond maturity, the wider the spread.