Final answer:
A spread represents the difference in bond yields between various types of bonds and Treasury securities with similar maturities. Bond yields reflect the expected rate of return, and corporate bonds typically offer higher yields than Treasury bonds due to higher risk.
Step-by-step explanation:
A spread represents the difference in the yields of various bonds as compared to Treasury securities of similar maturities. When looking at bond yield, it's important to note that 10-year Treasury bonds, also known as notes, often serve as a benchmark for other bonds such as AAA-rated corporate bonds. Entities like Moody's provide ratings to indicate the safety of borrowing by various firms; AAA-rated firms are considered relatively safe. However, corporate bonds tend to offer a higher interest rate compared to Treasury bonds because corporations are generally riskier borrowers than the federal government. As a result, the spread between these yields can indicate the risk premium investors require to hold corporate bonds over government securities. The bond yield itself is a measure of the return investors can expect over time, and can vary from the interest rate printed on the bond depending on market conditions.