Archive · 10 Jan 2026
Understanding Bond Yield Spreads in India
Imagine you have two options to invest your money.
One is a fixed deposit from a government bank that gives you 6.5% interest, and the other is a bond from a company that gives you 8.9% interest.
The difference in interest rates, which is 2.4%, is called the yield spread.
This spread helps investors understand the extra risk they are taking by investing in the company's bond instead of the bank's fixed deposit.
There are three main types of yield spreads: term spread, which is the difference between long-term and short-term government bonds; liquidity spread, which is the extra interest you get for investing in bonds that are harder to sell; and credit spread, which is the extra interest you get for investing in bonds from companies that might be riskier.
Understanding these spreads can help you make better investment decisions.
The yield spread is the difference in yields between two comparable bonds, reflecting risk, credit quality, and liquidity.
Term spread measures the difference between long-term and short-term government bond yields, indicating maturity risk and economic expectations.
Liquidity spread reflects the extra yield investors demand for holding less liquid bonds.
Credit spread compensates investors for the default risk of corporate bonds compared to risk-free government securities.
Yield spreads are dynamic and change with interest rates, economic conditions, and market sentiment.
- Who
- Fixed-income investors, including retail and institutional investors
- What
- The concept of yield spread in the bond market and its implications
- When
- As of January 9, 2026, with historical context and future implications
- Where
- India, focusing on government securities (G-Secs) and corporate bonds
- Why
- To understand the pricing of risk, credit quality, and liquidity in the bond market
- Coupon Rate (Adani Enterprises NCD)
- 8.9%
- Fixed Deposit Rate (PSU Bank)
- 6.5%
- Yield Spread (Adani NCD vs. PSU FD)
- 2.4 percentage points
- 10-Year G-Sec Yield (January 9, 2026)
- 6.7%
- TREPS Rate (January 9, 2026)
- 5.2%
- Term Spread (January 9, 2026)
- 150 basis points
- Credit Spread (AAA Corporate Bond vs. G-Sec)
- 100 basis points
- Credit Spread (AA/A Corporate Bond vs. G-Sec)
- 150-250 basis points