G-spread

What is it?

The G-spread, or government spread, is the difference between a bond's yield and the yield of a government benchmark of the same maturity. It isolates the compensation an investor receives for taking on the issuer's credit risk, stripping out the level of risk-free interest rates.

The following formula is used:

G-Spread = ( BondYield – BenchmarkYield ) × 100

• BondYield – the bond's yield to worst, expressed in percent per annum.
• BenchmarkYield – yield of the government benchmark curve at the same term, expressed in percent per annum. The term is measured to the redemption date that produced the yield to worst, and the benchmark is interpolated between the published maturities that bracket it.

The G-spread is the most straightforward of the credit spreads and works well for comparing issues of similar maturity. Its limitation is that it compares a single number with a single number: the shape of the yield curve between today and the redemption date is not taken into account.