credit spreads


Senior Member

The following is from Financial Times.

"I would put the odds of a US recession at about one-third over the next year and more than 50 per cent over the next two years. There is a substantial chance that widening credit spreads, a strengthening dollar as Europe and Japan plunge more deeply into the world of negative rates, and lower inflation expectations will tighten financial conditions even as recession looms. And while there is certainly scope for quantitative easing, for forward guidance and possibly for negative rates it is very unlikely that the Federal Reserve can take steps that are nearly the functional equivalent of the 400 basis point cut in Fed funds that is normally necessary to respond to an incipient recession."

Then, what does the words "credit spreads" mean in this context?
  • dijwelch

    New Member
    English- United States
    It is the difference in interest rates between two types of bonds. I think here FT is saying that because of the difference in strength between the dollar and the Euro & yen, the rate of return on bonds rates between the US and Europe/Japan will grow further apart. Its a fairly technical term, however, and probably best answered by a financial expert.
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