A credit spread is the extra yield a company's bond pays over a US Treasury bond of similar maturity, the compensation investors demand for the risk that the company does not pay. On October 8, 2026, the option-adjusted spread on investment-grade US corporate bonds was 0.82 percentage points (82 basis points) and on high-yield bonds 3.15 points (315 basis points) [2][3]. Spreads widen when investors fear defaults or a recession: DataPorium's series of high-quality corporate bonds shows the 10-year spread at 0.78 points in September 2026, against 4.83 points in October 2008 [1].
What is a credit spread?
A corporate bond's yield has two parts: the yield on a Treasury bond of the same maturity, which reflects interest rates in general, and the spread, which reflects the borrower's risk. In September 2026, high-quality 10-year corporate bonds (rated single-A or higher) yielded 5.77% on average while 10-year Treasuries yielded 4.99%, a spread of 0.78 points [1]. Spreads are usually quoted in basis points, hundredths of a percentage point, so 0.78 points is 78 basis points.
The spread pays investors for three things: the chance of default, the loss if a default happens, and the extra cost of selling a corporate bond in a hurry compared with a Treasury. Longer maturities usually pay more, because there is more time for things to go wrong. In September 2026, DataPorium's high-quality spreads were 0.37 points at 2 years, 0.56 at 5 years, 0.78 at 10 years and 0.94 at 30 years [1].
What does "option-adjusted" mean?
Many corporate bonds are callable: the company can repay them early, usually when rates fall, which hurts the investor. An option-adjusted spread (OAS) removes the value of such options so bonds can be compared fairly. The ICE BofA indexes published on FRED compute the OAS of each bond against a spot Treasury curve and weight the results by market value [2][3]. The investment-grade index covers bonds rated BBB or better; the high-yield index covers bonds rated BB or below [2][3].
Investment-grade vs. high-yield spreads
Investment-grade bonds are rated BBB- or higher by the main rating agencies; high-yield bonds, also called junk bonds, are rated lower and pay much more because their issuers default more often. The gap between the two groups is the clearest measure of how much risk investors are willing to take.
| Measure | October 8, 2026 | A year earlier | Range since October 2023 |
|---|---|---|---|
| Investment-grade OAS | 0.82 points | 0.77 (Oct. 9, 2025) | 0.73 (Jan. 22, 2026) to 1.33 (Oct. 20, 2023) |
| High-yield OAS | 3.15 points | 2.95 (Oct. 9, 2025) | 2.59 (Jan. 22, 2025) to 4.61 (Apr. 7, 2025) |
Source: ICE BofA US Corporate and US High Yield option-adjusted spreads via FRED, which shows three years of daily history [2][3].
Two funds show the same split in practice. As of October 9, 2026, the iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) had an option-adjusted spread of 85 basis points and an average yield to maturity of 6.13%, while the iShares iBoxx $ High Yield Corporate Bond ETF (HYG) had a spread of 276.59 basis points and a yield of 7.94% [7][8]. Both funds are managed by BlackRock (BLK). Their indexes differ from ICE BofA's, which is why the spreads are not identical.
Spreads are only half of a bond's risk. In 2022, LQD lost 18.01% and HYG 11.37% [7][8]. The high-yield fund lost less because its effective duration, its sensitivity to interest rates, was much shorter: 3.25 years for HYG against 7.53 years for LQD as of October 9, 2026 [7][8]. Rising Treasury yields hurt long investment-grade bonds more than wider spreads hurt shorter junk bonds.
How wide did spreads get in 2008, 2020 and 2022?
DataPorium's monthly series of high-quality corporate yields, which starts in 1984, shows the 10-year spread over Treasuries at each stress point [1]:
| Episode | Peak month | 10-year high-quality spread |
|---|---|---|
| Financial crisis | October 2008 | 4.83 points |
| Pandemic | April 2020 | 2.03 points |
| Fed hikes and inflation | October 2022 | 1.75 points |
| Spring 2025 widening | April 2025 | 0.95 points |
| Latest | September 2026 | 0.78 points |
| Lowest since 1984 | April 1997 | 0.58 points |
Source: DataPorium Interest Rates, monthly averages of high-quality (single-A or higher) corporate par yields minus Treasury par yields [1].
Lower-rated bonds move far more. In its November 2020 Financial Stability Report, the Federal Reserve showed the high-yield spread to 10-year Treasuries at a peak of almost 2,000 basis points in late 2008, and rising from about 400 to roughly 800 in March 2020; the triple-B spread, the lowest investment-grade tier, peaked at almost 680 basis points in 2008 [4]. In March 2020 the Fed cut rates to near zero and announced emergency programs, and spreads narrowed quickly after that [1][4].
Are credit spreads a recession signal?
Federal Reserve economists track a measure built from thousands of corporate bonds, the GZ spread, and split it into the part explained by expected defaults and the rest, called the excess bond premium (EBP). The EBP is described as a measure of investor sentiment or risk appetite in the corporate bond market, and the Fed's staff uses it to estimate the probability of a recession in the next 12 months, updating the data monthly [5][6].
The record shows both the strength and the limits of the signal [6][9]:
- 2001 recession (began March 2001): the EBP was already 0.81 points in June 2000 and 1.20 in February 2001, and the model's recession probability was 75% in February 2001.
- 2007-2009 recession (began December 2007): the EBP rose from -0.34 in June 2007 to 0.53 in December 2007; the GZ spread peaked at 7.84 points in November 2008.
- 2020 recession (began February 2020): the EBP was -0.15 in February 2020, giving no warning of a pandemic, then jumped to 1.19 in March.
As of September 2026, the GZ spread was 0.93 points, below its median of 1.52 since 1973; the EBP was -0.39, and the model's 12-month recession probability was 9.1% [6]. A negative EBP means investors were accepting less extra yield than default risk alone would justify.
Credit spreads are the price of default risk: narrow spreads, such as 0.82 points for investment-grade bonds on October 8, 2026, mean investors are relaxed; spreads several times wider have come with each recent recession.
What do spreads mean for companies that borrow?
A company's borrowing cost is the Treasury yield plus its spread, so both parts matter. In 2026, spreads stayed narrow while Treasury yields rose: high-quality 10-year corporate yields averaged 5.77% in September 2026, up from 4.81% in September 2025, even though the spread itself barely changed, from 0.69 to 0.78 points [1]. For investment-grade companies, rising rates, not credit risk, raised the cost of new debt.
Spreads can also move fast around Fed decisions. After the Fed raised its target range to 3.75%-4.00% on September 16, 2026, the high-yield OAS went from 2.70 points that day to 3.15 on October 8, while the investment-grade OAS moved from 0.78 to 0.82 [1][2][3]. A sustained widening raises costs most for lower-rated companies that need to refinance.
Frequently asked questions
What is a good credit spread?
There is no fixed good level; spreads are judged against history. DataPorium's 10-year high-quality spread has ranged from 0.58 points (April 1997) to 4.83 points (October 2008) since 1984, and was 0.78 in September 2026 [1].
What does it mean when credit spreads widen?
Investors are demanding more pay for default risk, usually because they expect weaker profits or a recession. The high-yield spread widened from 2.70 points on September 16, 2026 to 3.15 on October 8 [3].
What is the difference between investment-grade and high-yield spreads?
Investment-grade bonds are rated BBB- or higher and high-yield bonds BB+ or lower. On October 8, 2026, their option-adjusted spreads were 0.82 and 3.15 points [2][3].
Do credit spreads predict recessions?
Often, but not always. The Fed staff's excess bond premium rose before the 2001 and 2007-2009 recessions but gave no warning before the 2020 pandemic recession [6][9].
Sources & References
- [1] DataPorium Interest Rates (high-quality corporate bond yields and spreads over Treasuries since 1984; Treasury yields)
- [2] Federal Reserve Bank of St. Louis, FRED, ICE BofA US Corporate Index Option-Adjusted Spread (BAMLC0A0CM) (accessed October 13, 2026)
- [3] Federal Reserve Bank of St. Louis, FRED, ICE BofA US High Yield Index Option-Adjusted Spread (BAMLH0A0HYM2) (accessed October 13, 2026)
- [4] Board of Governors of the Federal Reserve System, Financial Stability Report, accessible version (November 2020)
- [5] Favara, Gilchrist, Lewis and Zakrajsek, Updating the Recession Risk and the Excess Bond Premium, FEDS Notes (October 6, 2016)
- [6] Board of Governors of the Federal Reserve System, GZ spread and excess bond premium data file (updated monthly; accessed October 13, 2026)
- [7] iShares, iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) fund page (accessed October 13, 2026)
- [8] iShares, iShares iBoxx $ High Yield Corporate Bond ETF (HYG) fund page (accessed October 13, 2026)
- [9] National Bureau of Economic Research, US Business Cycle Expansions and Contractions (accessed October 13, 2026)
