What exactly are you paid for when you buy a corporate bond?
Two bonds sit side by side. Same currency, same maturity date, same coupon dates. One was issued by a government whose debt the market treats as the benchmark; the other by a company. The government bond yields 4.4%. The company bond yields 6.4%.
That gap of 2.0 percentage points — 200 basis points — is the credit spread. It is the subject of this entire course.
The spread is a payment for one specific thing
The arithmetic is deliberately plain:
Credit spread = corporate yield − matched benchmark yield
"Matched" is doing real work. Same currency, same maturity, ideally the same payment structure. Compare a 10-year corporate to a 2-year government and you are mostly measuring the shape of the yield curve, not credit at all.
On $1,000,000 of face value held for a year, the difference is:
- Benchmark: 4.4% → $44,000
- Corporate: 6.4% → $64,000
- Extra: $20,000 per year
So the question this course answers is: what are you being paid $20,000 a year to accept? Chiefly one thing — the risk that the borrower does not pay you back in full and on time — plus two smaller components that the next lesson separates out.
Two risks living inside one instrument
A corporate bond is, in rough terms, a government bond with a credit exposure bolted on. It carries two distinct risks:
- Interest-rate risk. Shared with the government bond. When the general level of rates moves, both bonds reprice — the seesaw you already know. Measured by duration.
- Credit risk. Unique to the corporate bond. When the market's view of this borrower changes, only the corporate bond moves. Measured by the spread.
This separation is why practitioners quote corporate bonds in spread rather than yield. Quote a bond at "200 over" and you have stated the credit view while stripping out whatever the rate curve happens to be doing that morning. Two people can disagree about credit and agree about rates, and spread language lets them do it cleanly.
A note on basis points
One basis point (bp) is 0.01%. So 200bp = 2.00%, and 25bp = 0.25%. Credit is quoted in basis points because 5bp genuinely matters: on that $1,000,000 position, 5bp is $500 a year, and on a large portfolio it is the difference between a good year and an average one.
A price, not a promise
Here is the honest framing. That 200bp is not "extra return." It is the price the market currently charges for a specific risk. If the issuer pays every coupon and repays the principal, you collect the 200bp and it looks like free money in hindsight. If the issuer defaults in year two, no amount of extra coupon repairs the loss of principal.
Across many bonds, some of that spread is consumed by defaults and some is genuinely kept. Working out which portion is which is exactly what the next three lessons do.
In the data
Both sides of the subtraction are published. The corporate side is the US Treasury's curve for high-quality (roughly AAA to A) company bonds; the first table is its 5-year yield for August 2026. The benchmark is the Treasury's own 5-year yield; the second table has it on three days of the same month.
Mind the calendar. The corporate figure is one number for the whole month, stamped on the 1st, which in August 2026 was a Saturday with no Treasury quote at all. The Treasury yield moves every business day, so a spread built by matching dates exists only twelve times a year and is a staircase in between.
Try it now
Build one spread with your own hands:
- The corporate side first: read the high-quality corporate 5-year yield for August 2026 in the first table above, and note that it stands for the whole month.
- The government benchmark at the matched maturity: average the three Treasury 5-year readings in the second table, as a rough stand-in for the monthly average the corporate figure represents.
- Subtract, express the answer in basis points, then multiply the decimal spread by a notional of 1,000,000 to see the annual currency amount — 150bp is 0.0150, so 15,000 a year. Multiplying the basis-point number itself is the 10,000x error this course keeps warning about. Write that number down — every remaining lesson explains a piece of it.
A note on what we do here. EODHD Academy teaches how credit markets work, not what to do in them. Nothing here is a recommendation to buy or avoid any issuer, rating category or credit instrument, and nothing here predicts defaults or spread moves. All figures are rounded illustrations.