Spread

A spread is simply a gap, or difference; so the ‘spread’ between two and five is three. The bonds markets use them to express the difference between the yield on a very safe security like a government bond (‘Treasury’ in the US, ‘Gilt’ in the UK) and a riskier one issued by a government operating in an emerging market.

Say a ten-year US Treasury bond offers a yield of 4.15% and an equivalent emerging-market government bond offers a yield of 6.95% reflecting the higher risk both of its bonds falling in price and/or that government defaulting. The spread is 2.8% (6.95 – 4.15). This can also be expressed as 280 ‘basis points’, since a single basis point is 1/100th of one percent. The bigger the spread, the riskier the emerging market bond is thought to be.

Lastly, spreads are said to ‘widen’ as risk, and the gap between bond yields, increases, and ‘narrow’ when risk reduces.

MoneyWeek magazine

Latest issue:

Magazine cover
The hunt for water

The most valuable commodity

The UK's best-selling financial magazine. Take a FREE trial today.
Claim 4 FREE Issues

Bill Bonner: hold on to your cash, the real financial crisis is yet to come

Merryn Somerset Webb talks to Bill Bonner about economic cycles, and the 'catastrophic credit crisis' that will make 2008 look like a picnic.


Which investment platform?

When it comes to buying shares and funds, there are several investment platforms and brokers to choose from. They all offer various fee structures to suit individual investing habits.
Find out which one is best for you.


4 March 1890: The Forth Bridge is opened


The Prince of Wales, later Edward VII, opened the longest bridge in the world – the Forth Bridge, nine miles west of Edinburgh, on this day in 1890.