what’s a bond spread in economics/finance?

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Here’s the full sentence for context: “In 2009, Greece’s budget deficit exceeded 15% of its GDP. Fear of default widened the 10-year bond spread and ultimately led to the collapse of Greece’s bond market.”

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Anonymous 0 Comments

It’s a measure of how much more interest a certain country (Greece) has to pay in exchange for a loan (bond) in comparison to a more reliable country ( usually Germany) for the same kind of loan. It’used to measure how much trust banks and other investor have in a country to pay their loan back.

For example: Greece and Germany both needs money. Germany emits some 1000€ bonds, which it will pay back in 10 years, with interest ( let’s say, 1%/year). Greece emits the same bonds, but investor prefer to buy german bonds, as they think it is less risky.
So Greece has to offer more interest to get someone to buy their bond; let’s say, 2%/year

Now, something came up (recession), and it made Greek bonds even more unreliable. So the government has to offer even more interest in exchange for the loan to attract investor (let’s say, 4%/year)
The difference in yield has increased from 1%/year (spread 100) to 3%/year (spread 300)

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