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Finance allah shmoop what is spread to treasuries All right

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all right close that play bond magazine there people The

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answers are all right here Spread to treasuries is not

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a type of you know art photo but rather it's

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an indication of risk associated with a given debt or

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bond offering In the investing world Everything is calculated as

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some additional premium or additional cost or additional capital rental

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percentage all tact on to the safest investment in the

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world Things from the us treasury like t bills and

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bonds stuff like that from treasury We'll think about it

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like you're going to a restaurant looking at the dinner

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salad there for three bucks It's the cheapest thing on

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the menu if you wanted a steak Well that state

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costs fif eighteen dollars but it's a spread or premium

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to the dinner salad of twelve bucks right Three bucks

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for the south and you'd have to add twelve from

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state prize You get stick And if you really wanted

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to just use smaller numbers so that your customers would

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have the illusion that they were paying fewer box for

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dinner well you could describe everything in your restaurant as

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some spread to dinner salad such that this medium rare

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rib eye was in fact simply a spread to salad

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or premium of twelve bucks Even though you're paying fifteen

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anyway Us treasuries air broadly considered to be the safest

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bond bet in the world at least today until china

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or robots or both take everything over So when a

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bond offering is made it is priced relative to treasuries

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in the same way dinner items would be priced relative

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to that dinner salad house salad there with the oil

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and vinegar dressing that is if the bond offering is

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for say ten years than the u s treasury ten

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year paper that moment would be the foundational elements against

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which their risk your debt instruments would then be priced

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So let's say that today that ten year treasury paper

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is yielding three point two percent Caterpillar tractor wants to

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borrow a billion dollars to build their new tractor smelting

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plant there then offered by investors one hundred twenty basis

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point spread to treasuries debt deal to a fund that

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factory with a billion dollars of debt What does that

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mean It means that lenders are willing tto loan caterpillar

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A billion dollars payable in ten years at three point

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two percent per year plus one point two percent for

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total interest of four point four percent interest per year

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You know take it or leave it That's it So

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to recap this is play bond magazine and this is

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play But magazine reads it for the articles Really weird

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