[Verse 1]
When you buy a corporate bond, there's risk involved you see
The company might struggle and default eventually
That's why their yield is higher than the government's safe rate
The difference is the credit spread, compensation for your fate
[Chorus]
Credit spreads tell the story, risk and reward combined
Higher spread means higher risk, keep this truth in mind
Default probability rising, spreads will widen out
Market sentiment showing what the risk is all about
[Verse 2]
Treasury bonds are benchmarks, considered risk-free gold
Corporate bonds pay premiums for the stories they have told
A company with strong finances gets a tighter spread
While risky firms pay bigger gaps to get their bonds well-fed
[Chorus]
Credit spreads tell the story, risk and reward combined
Higher spread means higher risk, keep this truth in mind
Default probability rising, spreads will widen out
Market sentiment showing what the risk is all about
[Bridge]
When the market's feeling nervous, spreads will blow apart
Economic uncertainty plays havoc with the heart
Credit ratings matter deeply, AAA stays tight
While junk bonds pay much higher spreads to make the deal just right
[Verse 3]
Investment grade and high yield bonds show different spread behaviors
Lower-rated companies must pay their bond-buying saviors
The spread reflects two factors that move in different ways
Default risk and liquidity through good times and bad days
[Chorus]
Credit spreads tell the story, risk and reward combined
Higher spread means higher risk, keep this truth in mind
Default probability rising, spreads will widen out
Market sentiment showing what the risk is all about
[Outro]
So remember when you're trading, spreads reveal the game
Credit risk compensation, never quite the same
Wide or tight they tell you what the market thinks is true
Credit spreads are speaking, listen to their cue