Spread Tightening

Spread tightening is the decrease in the difference, or spread, between the yield of a riskier financial instrument, such as a corporate bond or a tokenized Real-World Asset (RWA), and the yield of a benchmark risk-free asset, typically a U.S. Treasury security, signaling a reduction in perceived credit risk or an increase in market liquidity. This phenomenon reflects a higher demand for the riskier asset, causing its price to rise and its yield to fall closer to the risk-free rate, often occurring during periods of strong economic growth or improved investor confidence.