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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.