What is a credit spread and why does it matter?

A credit spread is the difference between the yield on Korea Treasury Bonds of the same maturity and the yield on a particular bond, and it indicates the level of that bond's credit risk.

If the spread widens while Treasury yields are unchanged, it means the market sees a higher risk of default for that sector or issuer; if it narrows, the opposite. In particular, spreads on lower-grade corporate bonds are used as a key indicator of whether funds are flowing smoothly to companies.