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Credit spreads explained: investment-grade and high-yield OAS

Last updated: 2026-10-07

A credit spread is the extra yield a company's bond pays over a government bond of similar maturity. It is the market's price for lending to a business rather than to the Treasury: the risk of default, the cost of a less liquid bond, and plain appetite for risk, all in one number.

Read across a whole index, it is the credit layer of a macro view: how easy it is for companies to borrow, and how nervous lenders are about getting paid back.

Why “option-adjusted”

Many corporate bonds are callable: the issuer may repay them early, which it will do when that suits it rather than you. That right changes the bond's cash flows, so a plain yield gap would compare unlike things. The option-adjusted spread (OAS) strips the value of that embedded option out, leaving the spread a bond would pay without it. That is why index spreads are quoted as OAS.

spread  ≈  corporate yield − Treasury yield (same maturity)
OAS     =  that spread, after removing the value of the call option

quoted in percentage points:  1.00 pp = 100 basis points

Investment grade vs high yield

BucketRatingsWhat moves the spread
Investment gradeBBB− / Baa3 and aboveThe economic outlook, new-issue supply and the risk of downgrades. It usually moves in tens of basis points; only a real crisis moves it by hundreds.
High yieldBB+ / Ba1 and belowDefault expectations and risk appetite. Moves in hundreds of basis points in stress, usually alongside stocks.

High yield is the one to watch for stress. Investment grade is the one that tells you whether the stress has reached companies the market considered safe.

How to read them

  1. Speed and direction before level. A spread drifting wider over months is a slow repricing. The same move in a week is lenders pulling back.
  2. Compare a spread to its own history. What counts as tight has shifted over the decades as the indexes' mix of ratings and sectors changed, so a fixed threshold from an old cycle is a rough guide at best.
  3. Separate the yield from the spread. A bond's all-in yield can rise while its spread tightens: rates up, credit calm. That is a rates story, and the yield curve is where to read it.
  4. Hold it against stocks. An equity selloff with spreads barely moving is being priced as a repricing. The same selloff with high yield gapping wider is being priced as default risk, and that is the one that tends to keep going.

What a spread can't tell you

  • Anything about one company. These are index-wide spreads. A single borrower's risk needs its own bonds or credit default swaps, which MacroView does not carry.
  • A default rate. A spread prices expected losses plus a premium for bearing them. Realised defaults arrive later and are a different series.
  • When. Spreads can stay tight for years and then widen in days. Like the rest of a macro view, they say what is priced, rarely when it changes.

Where to see it live

The Bonds view shows both spreads next to the 10-year, 2s10s, inflation breakevens and the Fed's survey of bank lending standards, whose tightening has tended to come before wider spreads. The series are FRED's daily ICE BofA option-adjusted spreads: BAMLC0A0CM for investment grade and BAMLH0A0HYM2 for high yield. AI agents read them through the get_macro_snapshot MCP tool (igOas, hyOas); see MacroView for AI agents.

Related reading: the yield curve for the rates half of the same picture, the VIX term structure for the equity market's read on the same stress, how the AI build-out is financed for these spreads as the backdrop to one borrowing boom, and what a macro view is for where credit sits among the other layers. Educational material, not investment advice.