What does the G spread measure?

The G spread measures the yield spread between a bond and a government bond of similar maturity, typically a benchmark government bond such as U.S. Treasuries. This spread is informative as it not only represents the additional yield that investors demand for taking on the credit risk associated with the corporate bond but also reflects other factors such as liquidity and market conditions.

By focusing on the performance of a corporate bond relative to a government bond, the G spread effectively isolates the risk premium that investors require, which is crucial in credit analysis. Investors use this metric to assess how much additional return they can expect for the additional risks taken by investing in corporate bonds.

Other options describe different aspects of bond analysis: the difference in liquidity between different bond types, the relationship of spreads to inflation risk, and the impact of interest rate changes on bond prices, but they do not specifically define the G spread. The G spread is strictly concerned with the yield comparison to a government benchmark.