Spread

A spread is the gap between two prices, rates, or yields — most famously the difference between two bond maturities.

Common mix-ups

“Spread” also means the bid-ask gap in trading, a different but related idea.

Picture this

In calm markets, a high-yield bond fund yields 3 percentage points more than Treasuries. A scare hits the market and that spread blows out to 7 points as investors flee risk. The fund’s price falls sharply — not because the bonds are suddenly worthless, but because buyers now demand much more compensation to hold them. For a long-term holder collecting the coupons, the widened spread can mean better future returns; for a forced seller, it is a loss locked in. Spreads are where fear gets priced.

How to apply it

Watch credit spreads as a market-temperature gauge. Narrow spreads signal complacency; a sudden widening often precedes equity volatility. When you trade, always quote the spread before sizing an order.

What it means for you

Spreads signal risk and sentiment; a widening credit spread means investors want more pay for risk.

A quick example

Key takeaway

Spreads are the market’s price of fear. A widening credit spread means investors want more compensation for risk; a narrowing one means complacency, and the bid-ask spread in trading is the same idea at a smaller scale. Watch credit spreads as a temperature gauge for risk appetite, because sudden widening often precedes equity volatility. When you trade, the spread is your real transaction cost, so quote it before you size an order.

Definitions reviewed by the Investing Glossary editorial team.