Yield Spread

The difference between yields on differing debt instruments, calculated by deducting the yield of one instrument from another. The higher the yield spad, the greater the difference between the yields offered by each instrument. The spad can be measured between debt instruments of differing maturities, credit ratings and risk.

|||Looking at the yield spad, often with historical spads, can give investors ideas for potential investment opportunities.

For example, if the five-year Treasury bond is at 5% and the 30-year Treasury bond is at 6%, the yield spad between the two debt instruments is 1% (6% - 5%). If the yield spad has historically been closer to 5%, the investor is much more likely to invest in the five-year bond compared to the 30-year bond (as it should be trading around 1% instead of 6%).

In other words, if the 30-year bond is trading at 6%, then based on the historical yield spad, the five-year should be trading at around 1%, making it very attractive at its current yield of 5%.