A yield spread is the difference in yield between two bonds or two types of bonds. It can be used to compare the maturity, credit rating, liquidity and risk of two bonds, or of one bond to a benchmark. This difference can be measured in the following ways:
Absolute yield spread or nominal spread:
(yield on the subject bond) – (yield on the benchmark bond)
Treasuries are often chosen to be a benchmark. Expressed in basis points.
