When credit spread is tightening, why long-term interest could increase (yield curve shifts upward)? My understanding is that a tightening credit spread implies less risk therefore interest rate should decrease since investors now demand less premium? 
“… a tightening credit spread implies less risk”. Hold that thought.
There are two forces at play in the movement of curves you describe:
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a perception of a more benign risk environment that results in investors accepting a lower premium to hold risky assets;
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one consequence of point 1) is that Fixed Income investors switch away from ‘risk-free’ Government bonds into ‘risky’ Corporate bonds to benefit from the higher yield paid by the latter (higher yield that has now become more attractive due to the abating risk).
Cause-effect is therefore not to be found in the principle ‘less risk – downward movement of the yield curve’ but rather in the supply/demand mechanism at point 2) that generally results in the Govt. bond yeld to rise (everybody is selling) while, at the same time, the credit curve comes down (everybody is buying).
Good luck, Carlo
This questions from 2013 morning is confusing.
Still doesn’t make sense though. If everyone is buying prices will go up, then yield will goes down. Why will the yield curve shift upward?
Bump, anyone can explain a bit?
Two different factors could come into play.
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Economic expansion, yield curve shifts up, credit spread tighten, good for Corporate Bonds
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Economic expansion, investors dump safe risk free bonds, yield curve shifts up, demand for Corp bonds increases, credit spreads tighten, good for corporate bonds.
Inflation increases: yield curve shifts up.
Investors are more confident: spreads narrow.
Yield curve shift has far more effect than credit spread change.
Tightening credit spread results in price rise. And, it typically happens during economic growth, and that induces Fed to raise key rate. And, a upward parallel shift results in bigger losses cross board and bonds with longer duration more profoundly.