Nominal spread
Capital MarketsA bond's yield to maturity less the yield on one government bond of similar maturity, the crudest of the spread measures.
Also written: benchmark spread, G-spread
The nominal spread compares one point on the corporate's yield with one point on the government curve. It is what a screen usually shows and it is quick, which is most of its appeal.
Its weakness is that a bond pays cash flows on many dates and the curve between them is not flat. When the curve is steep, the answer depends materially on which benchmark bond you picked, so two people can compute different nominal spreads on the same bond and neither has made a mistake.
Conventions differ by currency, which matters before you compare two numbers. Euro investment grade is conventionally discussed against the swap curve, as a spread to mid swaps or as an asset swap spread, while sterling issues are quoted over the matched gilt and dollar issues over the matched Treasury.
The measure is safe for a rough comparison between two similar bullet bonds of the same maturity. It is not safe across bonds with different call structures, where it systematically flatters the callable one.
Worked example
A seven year corporate yields 4.20% and the nearest government bond of similar maturity yields 2.30%, so the nominal spread is 190 basis points.
Choose a benchmark one year longer on a steep curve and the same bond might show 175 basis points instead. Nothing about the bond changed.