Credit spread risk refers to the potential for loss arising from changes in the credit spread—the difference in yield between a corporate bond and a risk-free benchmark bond (such as government securities). This risk is influenced by factors such as changes in the perceived creditworthiness of the issuer, market conditions, and interest rate fluctuations. An increase in credit spreads can indicate a deterioration in the issuer's credit quality, leading to a decline in the bond's market value. Effective management of credit spread risk involves conducting thorough credit analysis, diversifying investments, and using hedging strategies to protect against adverse movements in spreads.

Basel scope:

• Pillar 1
• Pillar 2

Capital requirements:

Mitigated by Capital

Related Links:

•       BCBS 158 - Revisions to the Basel II market risk framework
•                 Basel Framework