Yield spread in the context of Early 1980s recession in the United States

⭐ Core Definition: Yield spread

In finance, the yield spread or credit spread is the difference between the quoted rates of return on two different investments, usually of different credit qualities but similar maturities. It is often an indication of the risk premium for one investment product over another. The phrase is a compound of yield and spread.

The "yield spread of X over Y" is generally the annualized percentage yield to maturity (YTM) of financial instrument X minus the YTM of financial instrument Y.There are several measures of yield spread relative to a benchmark yield curve, including interpolated spread (I-spread), zero-volatility spread (Z-spread), and option-adjusted spread (OAS).

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👉 Yield spread in the context of Early 1980s recession in the United States

The United States entered recession in January 1980 and returned to growth six months later in July 1980. Although recovery took hold, the unemployment rate remained unchanged through the start of a second recession in July 1981. The downturn ended 16 months later, in November 1982. The economy entered a strong recovery and experienced a lengthy expansion through 1990.

Principal causes of the 1980 recession included contractionary monetary policy undertaken by the Federal Reserve to combat double digit inflation and residual effects of the energy crisis. Manufacturing and construction failed to recover before more aggressive inflation reducing policy was adopted by the Federal Reserve in 1981, causing a second downturn. Due to their proximity and compounded effects, they are commonly referred to as the early 1980s recession, an example of a W-shaped or "double dip" recession; it remains the most recent example of such a recession in the United States.

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⭐ Core Definition: Yield spread
👉 Yield spread in the context of Early 1980s recession in the United States
Yield spread in the context of Credit risk

Yield spread in the context of Credit risk

Credit risk is the chance that a borrower does not repay a loan or fulfill a loan obligation. For lenders the risk includes late or lost interest and principal payment, leading to disrupted cash flows and increased collection costs. The loss may be complete or partial. In an efficient market, higher levels of credit risk will be associated with higher borrowing costs. Because of this, measures of borrowing costs such as yield spreads can be used to infer credit risk levels based on assessments by market participants.

Losses can arise in a number of circumstances, for example:

View the full Wikipedia page for Credit risk

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