BAA vs AAA Corporate Spread
The Moody's Seasoned Baa Corporate Bond Yield minus Moody's Seasoned Aaa Corporate Bond Yield is the cleanest measure of investment-grade quality risk premium because both legs share the same risk-free rate, the same duration profile, and the same tax treatment. The 1919-2026 series has averaged 105 basis points, peaked at 553 bps in May 1932, and bottomed at 32 bps in February 1966.
Also known as: Baa-10Y Treasury Spread (Baa spread) · Aaa-10Y Treasury Spread (Aaa spread)
Why This Comparison Matters
The Moody's Seasoned Baa Corporate Bond Yield minus Moody's Seasoned Aaa Corporate Bond Yield is the cleanest measure of investment-grade quality risk premium because both legs share the same risk-free rate, the same duration profile, and the same tax treatment. The 1919-2026 series has averaged 105 basis points, peaked at 553 bps in May 1932, and bottomed at 32 bps in February 1966. The April 2026 reading sits near 75 bps, against the 30-year average of approximately 96 bps and the post-1990 modal range of 70 to 110 bps.
What this specific spread measures and why it survives where others do not
Moody's Investors Service publishes the Seasoned Baa and Seasoned Aaa indices daily on FRED as DBAA and DAAA respectively, with the monthly averages also available as BAA and AAA. The 'seasoned' qualifier means the indices include only bonds with at least 20 years to maturity that have been outstanding for at least one month, which removes new-issue concessions and short-end rate noise. Both legs have approximately matched durations of 13-15 years and both are constructed from US-domiciled corporate issuers. Subtracting one from the other strips the risk-free rate and leaves the pure quality-tier credit premium. The same risk-free-rate cancellation is the reason the BAA-AAA spread is preferred over the BAA-10Y or AAA-10Y series for measuring quality-tier stress, since the latter two embed Treasury yield moves that have nothing to do with credit quality.
This spread has continuous monthly data back to January 1919, longer than any other commonly cited US credit-spread series. The Bloomberg US Investment Grade OAS (LUACOAS) starts in 1989. The ICE BofA US Corporate Index OAS starts in 1996. Only the Moody's-based BAA-AAA spread covers the 1929 stress, the 1932 trough, the 1973-1975 stagflation, the 1979-1982 Volcker tightening, the 2008 GFC, and the 2020 COVID episode in a single internally consistent series. That continuity is the principal reason the BAA-AAA spread remains the academic-grade benchmark for IG credit-quality stress despite the wider availability of OAS-based alternatives. NBER recession-dating committees have referenced the spread in retrospective dating papers since the 1960s, and the Federal Reserve Board's Financial Stability Report cites it as one of four core credit-stress indicators.
Conditional Forward Response (Tail Events)
How Aaa-10Y Treasury Spread has historically behaved in the 5 sessions following a top-decile or bottom-decile daily move in Baa-10Y Treasury Spread. Computed from 1,243 aligned daily observations ending .
Following these triggers, Aaa-10Y Treasury Spread falls 0.62% on average over the next 5 sessions, versus an unconditional baseline of +0.23%. 125 qualifying events; Aaa-10Y Treasury Spread closed positive in 43% of them.
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Frequently Asked Questions
What is a normal BAA-AAA spread?+
The 1919-2026 long-run average is 105 basis points, the post-1990 average is 96 bps, and the modal range since 1990 is 70 to 110 bps. The April 2026 reading of approximately 75 bps sits in the 18th percentile of post-1990 readings, the second-tightest decile. The historical thresholds are: complacency band below 70 bps, normal range 70-95 bps, warning band 95-110 bps, stress band 110-150 bps, recession-confirming band above 150 bps. Crisis readings (above 200 bps) have occurred only in 1932 (peak 553 bps), 1934 (peak 437 bps), and December 2008 (peak 280 bps).
How wide did the spread go during the 2008 financial crisis?+
The BAA-AAA spread peaked at 280 basis points in December 2008, with the Aaa yield averaging 5.05 percent and the Baa yield averaging 7.85 percent. The widening was driven by both legs moving in opposite directions: Treasury yields fell sharply on the flight to quality while Baa yields rose on rising default expectations. The spread did not narrow back below 100 bps until October 2010, more than two years after the peak. The 280 bps GFC peak compares with the 1932 Great Depression peak of 553 bps and the COVID peak of 165 bps in May 2020.
What happened to the spread during COVID?+
The spread widened from 95 bps in February 2020 to 165 bps in May 2020, a 70 bps widening that was substantially compressed by Federal Reserve intervention. The Fed announced the Primary Market Corporate Credit Facility (PMCCF) on March 23, 2020 and the Secondary Market Corporate Credit Facility (SMCCF) on April 9, 2020. The combined facilities purchased $14 billion of corporate bonds and bond ETFs through their December 2020 closing date. The spread compressed back to 110 bps by August 2020, much faster than the post-2008 normalization, which took two years for the same magnitude of compression.
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Data sourced from FRED, CoinGecko, CBOE, and other providers. This page is for informational purposes only and does not constitute financial advice. Past performance does not guarantee future results.