Expected Loss (EL) is the credit cost embedded in a bond's spread: EL = PD × LGD, where PD is the annualized probability of default and LGD is Loss Given Default (1 − Recovery Rate). For example, a bond with 2% annual PD and 60% LGD has EL = 120 bp. Under the simplified CFA framework, spread ≈ PD × LGD = EL — meaning the spread compensates for exactly the expected credit loss. In practice, spreads also include a liquidity premium and a credit risk premium (compensation for volatility of default losses), so market spreads typically exceed pure EL. EL is the starting point for credit analysis: if a bond yields 150bp over Treasuries but EL is only 80bp, the excess 70bp is compensation for uncertainty and liquidity. Note on this panel: PD here is back-solved from the market spread (PD = spread / LGD), so EL ends up identically equal to the spread by construction (the credit-triangle identity). To see the gap between market pricing and rating-implied fundamentals, use the Rich / Cheap row, which compares the market spread against the rating-implied spread from Damodaran's synthetic rating table.