Understand
the Economy and Banking

The spread is the difference between the value of two parameters, often used in different financial and economic contexts.

In the financial sphere, it can represent the difference between prices or quotes, interest rates or yields on financial instruments, and cost of debts.

This difference is generally expressed in basis points (100 basis points equals 1%), percentages or currencies, depending on the context in which it is used.

Sensitivity to financial markets: The spread can vary rapidly in response to changes in economic, political or global financial markets. Factors such as economic crises, political instability, or monetary policy decisions can influence the spread.

Spread between government bonds (Supranational Spread)
Difference between the yield on government bonds of one country and those of another country considered safer (often the German Bund* in the European Union).

Credit Spread
Difference between the yield of a corporate bond and that of a virtually risk-free government bond. This spread reflects the credit risk of the company that issues it.

Bid-ask spread
Difference between the purchase price (bid or money) and the sale price (ask or letter) of a financial asset.

Exchange spread
Difference between the purchase price and the sale price between two currencies in the foreign exchange market.

Spread on mortgage rates
Represents the margin that the bank adds to the reference rate to determine the final rate that the borrower will have to pay as interest.

Yield spread
This is the difference between the yields of two financial instruments (usually bonds or government securities) that have different characteristics, such as: maturity, credit quality or country of issue.


* Abbreviation for "Bundesanleihen", government bonds issued by the German Government.

Credit risk
This is the risk that a debtor will not pay what is due on the due date. The greater the credit risk, the higher the price requested by the creditor.

Liquidity risk
This is the risk that a security in the portfolio cannot be sold before maturity at an adequate price, with low transaction costs, and in a short time.

Macroeconomic factors
Global economic conditions, central bank monetary policies, inflation, economic growth rates and fiscal policies can influence the spread.

Market variability
Lack of investor confidence in a country or company affects spread. For example, political or economic crises in a country can cause the spreadof government bonds issued by that country to increase. The increased risk of an issuer (state or corporate) also causes the spread to increase.