Credit Spreads Explained: OAS, IG vs HY & NNN Cap Rates (Q1 2026)

A credit spread is the yield premium that a corporate bond pays over a comparable-maturity U.S. Treasury, compensating investors for taking credit risk instead of lending to the government. It is the single most important number in fixed-income markets. Credit spreads price default risk in real time, tell you what the market thinks about the economy, and drive everything from corporate borrowing costs to NNN real estate cap rates.

A ten-year Microsoft bond yielding 4.45 percent when the ten-year Treasury yields 4.10 percent has a credit spread of 35 basis points. A ten-year Hertz bond yielding 9.10 percent in the same market has a spread of 500 basis points. The difference, 465 basis points, is how the market prices the gap between an Aaa balance sheet and a B credit.

This page is the definitive 2026 reference for credit spreads. It covers how spreads are measured, current Q1 2026 levels across every rating category, the forces that move spreads, the historical extremes that define the range, and why a bond market concept has become the single most useful leading indicator of stress in commercial real estate.

Current Credit Spread Levels (Q1 2026)

Q1 2026 credit spreads sit near 25-year tights. Investment grade spreads are at levels last seen in the mid-1990s, reflecting strong corporate fundamentals, persistent global demand for yield, and a supply-constrained technical backdrop that is only now beginning to shift. The table below shows current option-adjusted spreads by rating tier for U.S. corporate bonds.

Rating Category	Q1 2026 OAS (bps)	Long-Term Average	Current vs Average
AAA	~40	~75	Tight
AA	51	~90	Tight
A	~70	~120	Tight
BBB	~100	~175	Tight
IG Corporate Index	~80	~150	Tight
BB	175	~330	Very tight
B	~340	~500	Tight
CCC and below	~720	~975	Moderate
HY Master II Index	285	~540	Very tight

Sources: ICE BofA US Corporate and High Yield Indices via FRED, as of early April 2026. Approximate figures for rating tiers not directly indexed. Long-term averages cover 1996 to 2026. Always verify current spread levels before making investment decisions.

The 100 basis point spread between BBB and BB is the single most watched number in corporate credit. It is the price of crossing the investment grade line, and it widens sharply the moment recession fears return.

What a Credit Spread Actually Measures

A credit spread is the extra yield an investor demands to hold corporate debt rather than an equivalent-maturity Treasury. Treasuries are the risk-free benchmark. Any bond issued by a company, municipality, or foreign government trades at some positive spread over Treasuries because those issuers can, in theory, default. The spread quantifies that default risk plus a liquidity premium for the fact that corporate bonds trade less frequently than Treasuries.

Credit spreads are typically quoted in basis points (bps), where 100 basis points equals 1.00 percent. A bond trading at a 150 bp spread over a 4.00 percent Treasury yields 5.50 percent. Spreads widen (get larger) when risk increases and tighten (get smaller) when risk decreases. In the worst weeks of the 2008 financial crisis, investment grade spreads widened from 150 bps to more than 600 bps. In the calmest periods of 2021, they tightened to below 90 bps.

Spreads do three jobs for the market:

Price default risk. Higher perceived probability of default produces wider spreads. Lower perceived probability produces tighter spreads. This is the first-order meaning of the number.
Compensate for liquidity. Corporate bonds trade less frequently than Treasuries. Investors demand a liquidity premium on top of the pure default premium.
Signal macro stress. Because every corporate bond in the market repricies through its spread, the aggregate movement of spreads is a real-time gauge of systemic risk. Credit spread widening often leads equity market sell-offs by days or weeks.

The Five Ways to Measure a Credit Spread

Traders and analysts use several spread measures depending on what they want to isolate. Each answers a slightly different question.

Nominal Spread (G-Spread): The simplest measure. It is the difference between the bond’s yield to maturity and the yield on an on-the-run Treasury of the same maturity. Easy to calculate, widely quoted, and useful for quick comparisons. Ignores the shape of the Treasury curve.
Interpolated Spread (I-Spread): The bond’s yield minus the interpolated point on the Treasury curve that matches the bond’s exact maturity. More precise than the G-spread when a bond matures in a non-standard year.
Z-Spread: The constant spread that, when added to the Treasury spot rate curve, makes the present value of the bond’s cash flows equal to its market price. Accounts for the full term structure rather than a single reference Treasury. Used on fixed cash flow bonds.
Option-Adjusted Spread (OAS): The Z-spread after adjusting for embedded options, primarily the issuer’s call right or the investor’s put right. OAS strips out the value of the option so that two bonds with different call features can be compared on a pure credit basis. This is the standard institutional measure and the one reported by the major indices.
Credit Default Swap (CDS) Spread: The annual premium paid by a CDS buyer to insure against the issuer’s default. Trades in a separate but related market. When CDS spreads diverge materially from bond spreads, it can signal liquidity stress, index rebalancing, or arbitrage opportunities.

For index-level market coverage, OAS is the standard. When financial media report that “investment grade spreads tightened 5 basis points” or “high yield spreads widened to 425,” they are typically referencing the ICE BofA index OAS. Those are the series the Federal Reserve publishes daily on FRED and that PM teams benchmark against.

Credit Spreads by Rating: The Compensation Ladder

Credit spreads increase monotonically as credit quality falls. The widening per notch is not linear. The jump from BBB- to BB+, a single rating notch across the investment grade boundary, produces a much larger spread move than any notch shift within investment grade. This reflects the institutional-eligibility cliff that defines the IG/HY divide.

A few structural features show up consistently in every market environment:

Investment grade compression. AAA through A spreads cluster tightly, typically within 40 to 50 bps of each other. BBB trades wider, reflecting its position as the IG floor and the one most exposed to downgrade risk.
The IG/HY cliff. The BBB to BB gap is consistently 75 to 150 bps, even in the tightest markets. This is the price of institutional exclusion. Pension funds and insurance mandates cannot hold BB bonds; the smaller pool of buyers demands more yield.
High yield dispersion. Within HY, the spread between BB and CCC is enormous. In Q1 2026, BB sits at 175 bps while CCC trades at approximately 720 bps, a 545 bp gap. Default risk compounds geometrically through the HY tiers.
CCC volatility. CCC spreads move four to five times more than IG spreads during stress. In the 2020 COVID crash, IG widened 200 bps from trough while CCC widened more than 1,000 bps. The ratio holds in reverse during rallies.

For a rating-by-rating view of what each tier looks like in terms of real issuers and NNN tenants, see the full bond ratings chart.

What Moves Credit Spreads

Credit spreads are driven by a mix of macro forces, market technicals, and issuer-specific factors. Understanding which force is driving a given move is the core skill in credit analysis.

Growth expectations. When expected corporate earnings rise, default probabilities fall and spreads tighten. When recession risk climbs, spreads widen. This is the single largest driver over any cycle.
Federal Reserve policy. Lower short-term rates push investors down the credit curve in search of yield, tightening spreads. Rate hikes do the opposite. The 2022 to 2023 hiking cycle widened HY spreads from roughly 300 to 600 bps before central bank pivots reversed the move.
Liquidity conditions. When bank balance sheets are tight and market-making capacity is constrained, spreads widen beyond what fundamentals alone would justify. March 2020 was the textbook example: IG spreads blew out 300 bps in three weeks despite no actual default deterioration, driven purely by a liquidity run.
Supply and demand. Heavy corporate issuance into a market with static demand widens spreads. Scarce supply into strong demand tightens them. The 2026 backdrop is shifting on this exact axis: 2026 issuance forecasts of approximately $2.25 trillion (a 35 percent year-over-year increase driven by AI infrastructure capex) may finally tip the supply-demand balance toward wider spreads after years of tight technicals.
Default experience. Rising actual default rates feed back into expected future defaults and widen spreads. See the default rate tables for current historical context.
Sector idiosyncratic risk. Pharmaceutical patent cliffs, retail disruption, energy price collapses, and regulatory shifts can move individual sector spreads while the broader market moves little. Dental DSO spreads blew out 400 bps in 2024 to 2025 while the broader HY index moved less than 50 bps.

Historical Credit Spread Extremes

Credit spreads have been measured consistently since 1996 (ICE BofA indices). The history is a useful anchor for understanding what tight and wide actually mean in a long-term context.

Period	IG Corporate OAS	HY Master II OAS	Context
1997 (pre-crisis)	~60 bps	~270 bps	Late-cycle tight, pre-LTCM
October 2002	~260 bps	~1,040 bps	Post-dot-com recession peak
June 2007	~85 bps	~240 bps	Pre-GFC cycle low
December 2008	~625 bps	~2,180 bps	GFC peak (all-time record)
January 2010	~170 bps	~640 bps	Post-GFC normalization
March 2020	~400 bps	~1,100 bps	COVID crash peak
June 2021	~85 bps	~310 bps	Post-COVID tight
October 2022	~165 bps	~600 bps	Fed tightening widening
Q1 2026 (current)	~80 bps	285 bps	25-year tights, AI supply wave

Approximate month-end values. Sources: ICE BofA US Corporate Index OAS and ICE BofA US High Yield Master II OAS via FRED.

Two patterns jump out. First, spreads are genuinely cyclical. Peak-to-trough moves of 500 bps in IG and 1,500 bps in HY are normal within a single cycle. Second, the tails are asymmetric. Widening events happen quickly, often over weeks. Tightening back to pre-crisis levels takes years. The 2008 to 2013 round trip took five years. The 2020 round trip took about 15 months, but that speed was historically unusual.

Credit Spreads as a Leading Indicator

One of the most useful properties of credit spreads is that they lead other market stress signals. The corporate bond market digests economic and sector information faster than equity markets because bond investors price to a specific maturity date, not to growth potential. A BBB-rated company with deteriorating cash flow will see its bond yield creep higher long before its stock price falls.

Leading equity sell-offs. In every major risk-off event since 2000, credit spreads began widening before the S&P 500 peaked. The lead time averages two to eight weeks.
Leading recession calls. Yield curve inversion combined with rising HY spreads has preceded every recession since 1990 with zero false positives. When both signals align, the economic weakness is usually already underway.
Leading cap rate expansion. For commercial real estate, credit spreads are a cleaner leading indicator than the 10-year Treasury yield alone, because they capture both the risk-free rate direction and the risk-premium component that drives property cap rates.

For investors who watch cap rates or mortgage rates daily, tracking the IG and HY OAS series is one of the highest-leverage habits available. The FRED symbols are BAMLC0A0CM (IG Corporate) and BAMLH0A0HYM2 (HY Master II). Both update daily at no cost.

The Q1 2026 Credit Spread Picture

The 2026 credit market enters the year at an unusual inflection point. Spreads are near multi-decade tights, corporate fundamentals remain generally sound, and the yield on IG bonds (currently in the 5.00 to 5.50 percent range) offers investors the most compelling all-in carry in more than a decade. At the same time, technical conditions are shifting in ways that historically precede spread widening.

The specific forces at play:

AI-driven issuance supply wave. 2026 IG issuance is forecast at approximately $2.25 trillion, a 35 percent year-over-year increase. Much of this is concentrated in hyperscaler capex for AI data centers. Meta’s $27 billion data center-backed security in late 2025 kicked off the wave. Google, Amazon, Microsoft, and Oracle are all expected to access the primary market in size.
Maturity profile lengthening. Average new-issue tenor extended from roughly 10 years to 13 years in Q4 2025. Issuers are locking in long-term funding while spreads remain tight. This reshapes the credit curve and has implications for duration-sensitive investors.
Demand pressure testing. For the first time since 2022, supply may meaningfully exceed demand. That imbalance historically produces spread widening of 25 to 75 bps on the IG index even without a macro shock.
U.S. sovereign rating context. The May 2025 Moody’s downgrade of the U.S. to Aa1 has not materially widened Treasury yields but has reshaped the global reference frame for corporate credit. The top of the U.S. corporate stack (Microsoft, Johnson & Johnson, Apple) is now rated higher than the U.S. Treasury at multiple agencies, a historic first.

For existing IG bond holders and for real estate investors underwriting new acquisitions, the practical question is whether to assume current spreads hold or to underwrite to a wider spread environment. Most institutional research houses are building scenarios around 25 to 50 bps of IG spread widening in 2026, with risk to the wider side if AI capex issuance accelerates or macro conditions soften.

How Credit Spreads Drive NNN Cap Rates

Credit spreads do not stop at the bond market. The same market forces that price corporate debt also price single-tenant net lease real estate, because the lease payment is the income stream being valued and the tenant’s credit is the backing for that payment.

The mechanical link runs through three channels:

Discount rate on lease income. An NNN property leased to a BBB+ tenant is conceptually a long-duration bond backed by that tenant’s credit. When the tenant’s bond spread widens, the discount rate applied to the lease widens too, and the property value compresses.
Institutional buyer pool. REITs, pension funds, and large 1031 exchange buyers benchmark their acquisition yields against corporate bond yields. When IG corporate yields rise, the cap rate at which an institutional buyer is willing to transact rises with them. This is the most direct mechanism by which credit spreads drive NNN pricing.
Financing cost pass-through. Commercial real estate loans are priced at a spread over either Treasuries or SOFR. When the base rate rises or the loan spread widens, leveraged buyer returns compress, which softens pricing.

Tenant Rating	Typical Bond Spread	Typical NNN Cap Rate	Spread to Cap Rate Ratio
AAA to AA-	~40 to 60 bps	4.00% to 5.25%	Cap rate = Treasury + ~50 bps + premium
A+ to A-	~65 to 90 bps	5.00% to 6.00%	Wider than bond spread, reflects illiquidity
BBB+ to BBB-	~95 to 140 bps	5.50% to 7.00%	Large real-estate illiquidity premium
BB+ to BB-	~175 to 250 bps	6.50% to 8.00%	Cap rate at roughly 4x bond spread + Treasury
B+ to B-	~325 to 425 bps	7.50% to 9.50%	Significant re-tenanting risk premium
CCC and below	~700+ bps	9.00%+	Distressed pricing, not institutional

Cap rate ranges are approximate Q1 2026 market observations. Bond spreads are typical OAS for each rating tier. See the full investment grade triple net lease guide for sector-level detail.

The practical takeaway is that NNN cap rates consistently trade wider than the underlying tenant’s bond spread. The difference reflects real estate illiquidity, lease term risk, residual value risk, and the smaller buyer pool. But the two numbers move together directionally. Watching IG and HY OAS is one of the most efficient ways to anticipate where NNN cap rates are headed.

The Walgreens case in 2025 is the textbook illustration. When Sycamore Partners took the company private and the credit effectively dropped off the rating scale, Walgreens cap rates widened from the mid-5 percent range to 8.5 percent and higher within months. The repricing tracked exactly what a bond spread widening would imply.

Where to Watch Credit Spreads

Most of the useful spread data is available free from public sources. The essential feeds:

FRED (Federal Reserve Economic Data). The St. Louis Fed publishes daily ICE BofA OAS series for IG corporate, HY Master II, and every rating tier from AAA through CCC. Free. Symbols: BAMLC0A0CM (IG), BAMLH0A0HYM2 (HY), BAMLC0A4CBBB (BBB), BAMLH0A1HYBB (BB), BAMLH0A3HYC (CCC).
Markit CDX indices. CDS-based credit indices (CDX.IG and CDX.HY) that trade on an interdealer basis. Useful for near-real-time risk sentiment.
Bloomberg Index Services. The Bloomberg US Aggregate Corporate index and Bloomberg US Corporate High Yield index are the benchmark institutional measures.
FINRA TRACE. Individual bond trade prints, useful for looking at specific issuer spreads.

Frequently Asked Questions

What is a credit spread in simple terms?

A credit spread is the extra yield a corporate bond pays over a Treasury bond of the same maturity. It compensates investors for the risk that the corporate issuer might default. A 150 bp spread means the corporate bond yields 1.50 percent more than the Treasury.

What is OAS and why do institutions use it?

OAS stands for Option-Adjusted Spread. It is the bond’s spread over the Treasury curve after stripping out the value of embedded options like call rights. Institutions use OAS because it isolates pure credit risk, allowing apples-to-apples comparison between bonds with different call features.

Where are investment grade credit spreads right now?

As of early April 2026, the ICE BofA US Corporate Index OAS sits at approximately 80 basis points, near 25-year tights. BBB bonds trade at roughly 100 bps, AA at 51 bps, and AAA at approximately 40 bps. These levels are significantly tighter than the long-term average of roughly 150 bps.

What is the difference between IG and HY spreads?

Investment grade (IG) spreads are the yield premiums on bonds rated BBB- or higher. High yield (HY) spreads are on bonds rated BB+ or lower. HY spreads are typically three to five times wider than IG spreads, reflecting materially higher default risk. As of Q1 2026, IG sits near 80 bps while HY is at 285 bps.

Why do credit spreads widen during recessions?

When recession risk rises, investors expect more corporate defaults. Wider spreads compensate for that higher expected default rate. Recessions also create liquidity stress and reduce investor risk appetite, which amplifies the spread widening beyond pure default probability changes.

Do credit spreads predict equity market declines?

Credit spreads typically begin widening before equity markets peak. The lead time is usually two to eight weeks. Combined with yield curve inversion, widening HY spreads have preceded every U.S. recession since 1990 with zero false positives.

How do credit spreads affect real estate?

Commercial real estate cap rates, especially in single-tenant net lease, track corporate bond spreads closely. When the IG corporate spread widens, institutional buyers demand higher cap rates to transact, and property values fall. This is why credit spreads are a leading indicator of cap rate expansion in NNN real estate.

What was the widest credit spread in history?

The ICE BofA US Corporate Index OAS peaked at approximately 625 bps in December 2008 during the global financial crisis. The High Yield Master II OAS peaked at 2,182 bps that same month. These remain the widest levels since daily index history began in 1996.

What is the difference between Z-spread and OAS?

The Z-spread is the constant spread added to the Treasury spot curve that discounts a bond’s cash flows to its market price. OAS takes the Z-spread and further adjusts for the value of embedded options, primarily call features. For a non-callable bond, Z-spread and OAS are identical. For a callable bond, OAS is lower.

Where can I find free credit spread data?

The Federal Reserve Economic Data (FRED) website publishes daily ICE BofA OAS series for IG, HY, and every rating tier at no cost. Key symbols are BAMLC0A0CM (IG Corporate), BAMLH0A0HYM2 (HY Master II), BAMLC0A4CBBB (BBB), and BAMLH0A1HYBB (BB).