Yield Spread

The difference between yields on differing debt instruments, calculated by deducting the yield of one instrument from another. The higher the yield spread, the greater the difference between the yields offered by each instrument. The spread can be measured between debt instruments of differing maturities, credit ratings and risk.

Investopedia Says:
Looking at the yield spread, often with historical spreads, can give investors ideas for potential investment opportunities.

For example, if the five-year Treasury bond is at 5% and the 30-year Treasury bond is at 6%, the yield spread between the two debt instruments is 1% (6% - 5%). If the yield spread has historically been closer to 5%, the investor is much more likely to invest in the five-year bond compared to the 30-year bond (as it should be trading around 1% instead of 6%).

In other words, if the 30-year bond is trading at 6%, then based on the historical yield spread, the five-year should be trading at around 1%, making it very attractive at its current yield of 5%.

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Find out what happens when short-term interest rates exceed long-term rates. The Impact Of An Inverted Yield Curve
Understand the various factors that influence them so you can learn to anticipate their movements for profit. Trying To Predict Interest Rates
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Investing in bonds - What are they, and do they belong in your portfolio? Bond Basics Tutorial

Difference in Yield between various issues of securities. In comparing bonds, it usually refers to issues of different credit quality since issues of the same maturity and quality would normally have the same yields, as with Treasury securities, for example. Yield spread also refers to the differential between dividend yield on stocks and the Current Yield on bonds. The comparison might be made, for example, between the Standard & Poor's Index (of 500 stocks) dividend yield and the current yield of an index of corporate bonds. A significant difference in bond and stock yields, assuming similar quality, is known as a yield gap.

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