what does corporate bond spread mean. also tell me the concept of 'basis points'.
1 Replies
Dhruv
(Chartered Accountant)
(308 Points)
Replied 25 April 2010
i hope you're aware about the risk return concept? It basically implies that higher risk you take should be compensated by higher return. When you take a bond that is issued by the government, it has no risk since the government does not default on it's debt. When you take up a corporate bond, there is a risk of default and hence the return on such bonds higher to compensate you for the risk .
The corporate bond spread is basically the difference in returns you get on goverment bonds and corporate bonds.
And basis point - A unit that is equal to 1/100th of 1%
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