Credit Spreads
Selected range · January 1986 — June 2026
About this chart
The Credit Spreads chart measures the difference between the yield on lower-investment-grade U.S. corporate bonds and the yield on 10-year U.S. Treasury securities.
Corporate bonds normally offer a higher yield than Treasury securities because investors take on additional risks, including the possibility that a company may experience financial difficulties or fail to repay its obligations. The extra yield investors receive for accepting this risk is commonly called a credit spread.
This model uses Moody’s seasoned Baa corporate bond yield as the corporate-bond measure. Baa bonds are rated near the lower end of investment grade, so their yields tend to respond more noticeably to changes in perceived corporate risk than higher-rated bonds.
The 10-year U.S. Treasury yield is used as the lower-risk reference rate. The credit spread is calculated by subtracting the Treasury yield from the Baa corporate bond yield.
A wider spread means that investors require more additional yield to hold corporate bonds instead of Treasury securities. This often happens when concerns about corporate defaults, financial conditions, or the economic outlook increase.
A narrower spread means that investors require less additional compensation for corporate credit risk. This is often associated with stronger confidence, easier financial conditions, and lower perceived default risk.
The chart compares the current credit spread with its historical average. Standard-deviation zones show whether the spread is relatively normal or unusually wide or narrow compared with previous observations.
Values above the historical average indicate wider-than-usual credit spreads. Values below the historical average indicate narrower-than-usual spreads.
A movement beyond the outer standard-deviation zones represents a historically unusual observation, but it does not mean that the spread must immediately return to its average.
Credit spreads are useful for understanding financial conditions and investor risk perception, but they should not be treated as a precise recession forecast or a trading signal. Spreads can remain unusually wide or narrow for extended periods.
Limitations
- The spread is a market-based measure of relative borrowing costs and credit risk, not a direct measure of current defaults or economic activity.
- The model compares broad corporate and Treasury yields, so changes in the spread can reflect movements in either corporate yields, government yields, or both.
- The Baa corporate-yield series represents an aggregate of lower-investment-grade bonds and may not reflect conditions in high-yield debt, specific industries, or individual issuers.
- Credit spreads are influenced by default expectations, liquidity, risk appetite, monetary policy, inflation, and market technicals, making it difficult to attribute a change to one cause.
- The historical average and standard-deviation zones depend on the selected sample period and may be affected by extreme stress episodes.
- Structural changes in bond-market liquidity, regulation, credit quality, and central-bank policy may weaken comparisons across distant historical periods.
- An unusually wide or narrow spread can persist and should not be interpreted as a precise recession forecast or market-timing signal.
Methodology
The credit spread is calculated by subtracting the 10-year U.S. Treasury yield from Moody’s seasoned Baa corporate bond yield. The standard deviation of the full spread series is used to measure how far the current spread is from its historical average.
The model uses monthly observations beginning in January 1986. The ±1σ, ±2σ and ±3σ zones show whether the spread is historically normal, unusually wide, or unusually narrow.
Data sources
Moody’s Seasoned Baa Corporate Bond Yield
Range: January 1986 to the latest available observation
Source: Moody’s, Moody’s Seasoned Baa Corporate Bond Yield [DBAA], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/DBAA
Market Yield on U.S. Treasury Securities at 10-Year Constant Maturity
Range: January 1986 to the latest available observation
Source: Board of Governors of the Federal Reserve System (US), Market Yield on U.S. Treasury Securities at 10-Year Constant Maturity, Quoted on an Investment Basis [DGS10], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/DGS10