Yield spread

Yield spread is the difference between the yields of high-risk junk bonds and high-grade US Treasury bonds. The yield spread is usually used by most stock market investors to determine whether the market is leaning towards a speculative mood or if the market is going towards high quality investments. When speculators go for high-risk junk bonds for higher yields, capital is mostly migrated from high-grade bonds that pays lower yields to high-risk junk bonds. As a result, the yield spread narrows and it is a sign of a risky market.

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