Credit Spread

In options trading, a strategy that involves selling a higher-premium option and buying a lower-premium option at a different strike price, collecting a net credit that represents the maximum profit. In bond markets, the credit spread is the yield difference between a corporate bond and a risk-free government bond of the same maturity, reflecting the market's assessment of default risk. Widening credit spreads are one of the earliest signals of economic stress and often precede equity market declines.