The difference in quality spread as measured at two different maturities. This difference goes hand in hand with maturity length on a respective yield curve. In essence it represents a source of comparative advantage that leads to cost savings for the counterparties to a swap. Following the same example given in the definition of quality spread, the quality spread differential is calculated as:
Quality spread differential = longer-maturity quality spread – shorter-maturity quality spread
Quality spread differential = 200 bps – 100 bps
Quality spread differential = 100 bps or 1%
