The extra yield companies pay over government bonds. Widening spreads mean lenders are more worried about defaults.
A company bond yields more than a government bond of the same maturity because the company might default. The difference is the credit spread.
High-yield ("junk") spreads react most, because those companies are most exposed to a downturn.
Why it matters
Spreads are a real-time gauge of stress. They widen sharply before and during recessions, as lenders demand more compensation and some borrowers lose access to credit altogether, which itself slows the economy.
