I do not know why but somebody wanted me to define some basics on Yield spreads, that whether Yield spreads can nick-leesonjudge the risk environment in an economy ?

Yield spreads are good tools to judge the risk environment in an economy a lower yield spread means that the issuer of debt is in a situation to demand loans at a lower spread above the yield of government security which in turn shows the presence of ample liquidity.

As far as economic growth is concerned a lower yield spread indicates greater amount of liquidity available for growth and entrepreneurial practices as well as a negative impact on the front of inflation. Continue reading