Work out credit spread instantly with clear inputs, formula shown and shareable results.
The credit spread is the extra yield a corporate bond pays over a government bond of similar maturity. Dividing the spread by loss given default gives the annual default rate at which that extra yield is exactly consumed — the break-even for taking the credit risk.
Spread and break-even
Spread = corporate yield - government yield; break-even PD = spread / (1 - recovery)
Figures are estimates for planning only. Market returns are not guaranteed, and rates, limits and tax rules change. This is not financial or tax advice — speak to a qualified adviser before acting.
No. Part pays for illiquidity and for the risk that spreads widen, so the break-even default rate overstates expected losses.
Investors demand more compensation exactly when default risk rises and liquidity dries up, so prices fall on both counts.