What describes the spread curve in finance?

The spread curve effectively illustrates the relationship between credit spreads and the time to maturity or duration of fixed income securities. It is a visual representation that allows investors to analyze how credit risk varies across different maturities. By plotting credit spreads against maturity, it presents insights into how the market perceives credit risk over time; typically, longer maturities may embody wider spreads due to increased uncertainty and risk exposure.

Grasping this concept is vital for portfolio management and risk assessment, as it helps investors make informed decisions about bonds and credit-quality analysis. The shape of the spread curve can indicate market conditions, such as economic stability or distress, thereby guiding investment strategies.

In contrast, the other options do not accurately describe the spread curve. While graphing bond yields over time relates to the yield curve, it does not focus specifically on credit spreads. The measure of portfolio risk addresses a different aspect of finance and does not pertain to the concept of spreads at all. Finally, comparing equity and bond performance spans a broader analysis and is distinct from the specific study of credit spreads over maturities.