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In the most general sense, a spread is the difference between two similar measures. In the stock market, for example, the spread is the difference between the highest price bid and the lowest price asked.
With fixed-income securities, such as bonds, the spread is the difference between the yields on securities having the same investment grade but different maturity dates. For example, if the yield on a long-term Treasury bond is 6%, and the yield on a Treasury bill is 4%, the spread is 2%.
The spread may also be the difference in yields on securities that have the same maturity date but are of different investment quality. For example, there is a 3% spread between a high-yield bond paying 9% and a Treasury bond paying 6% that both come due on the same date.
The term also refers to the price difference between two different derivatives of the same class.
For instance, there is typically a spread between the price of the October wheat futures contract and the January wheat futures contract. Part of that spread is known as the cost of carry. However, the spread widens and narrows, caused by changes in the market -- in this case the wheat market.
spreadthe difference between the bid (buy) and offer (sell) price of a FINANCIAL SECURITY, FOREIGN CURRENCY or COMMODITY quoted by a MARKET MAKER or dealer. See BID PRICE.
spreadsee BID PRICE.
(1) The difference between the asking price and an offer. For example, if the seller was asking $1.5 million but the offer was only $1.2 million, the spread would be $300,000. (2) The difference between the cost of money and the earning rates.
Example: A mortgage banker is able to borrow money at 7 percent interest because of its excellent credit and high net worth. It then loans that money out on moderately risky ventures at 15 percent interest. The spread is 8 percent.