Intermarket Sector Spread

The difference in yields between two fixed-income securities with the same maturity, but originating from different investment sectors. Intermarket sector spreads in the bond market, for example, often occur between corporate bonds and government bonds with the same maturity. The U.S. bond market is classified in issuer-based sectors. These sectors include the U.S. government, U.S. government agency, corporate, municipal, mortgage, asset-backed securities and foreign sectors. A common example of an intermarket sector spread is the yield spread between Treasury securities and non-Treasury issues with the same maturity.

Spreads tend to narrow or tighten when the economy is growing; spreads tend to widen when the economy is slowing down, when bond interest rates drop. Other factors that can affect the intermarket sector spread include the relative credit risk of both bonds, the presence of embedded options (that add value to the issue), the liquidity of the issues, and the tax liabilities of the interest received by investors. In comparison, an intramarket sector spread is the difference in yields between two issues within a market sector, such as two corporate bonds.


Investment dictionary. . 2012.

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