Corporate Bond

A corporate bond is debt issued by a company to raise money, paying investors a fixed or floating interest rate in exchange for the loan. Corporate bonds carry more default risk than government bonds, since a company can go bankrupt in a way a government issuing its own currency generally cannot, so they pay a higher yield to compensate.

That extra yield is called the credit spread, the gap between a corporate bond's yield and a government bond of similar maturity. The spread widens when investors grow more worried about defaults and narrows when confidence improves, making it a widely watched gauge of market stress.