This interest rate spread is defined
as the difference between a similar-maturity corporate bond and a US treasury
bond. This spread is one way to gauge the health of the US credit markets.
When the spread is high as compared to historical levels, it implies a greater
anticipated default risk of US corporations. When the spread is low as
compared to historical levels, it implies a low anticipated default risk of US
corporations and a greater availability of credit. Below is a chart of
this spread from June 1989 to October 2009. One interesting data point is
how this spread climbed to 4.41% by the end of September 2008, giving us a
warning that the US credit markets were seizing-up. One month later the US
stock market crashed 35% in 14 trading days.