Reduced spread is basically the fall in the arbitrage or difference between buying price and selling prices for a financial entity. These financial entity can be a loan, grant, currency etc.
Example can be
USD to INR exchange rate can be Rs 60 to 1 USD. But now on normal days and loads, the buying rate may be 57 but selling rate may be 63. There is Rs 6 difference in buying and selling.
Now if buying rate becomes 59 and selling becomes 61 because of market dynamics, we can say that this shows reduced spread as the difference is now 2.