Intermarket Spread Swap

AAA

DEFINITION of 'Intermarket Spread Swap'

A swap transaction meant to capitalize on a yield discrepancy between bond market sectors. Intermarket spread swaps are based upon expectations of yield spreads between different bond sectors or spots on the yield curve. By entering a swap, parties are able to gain exposure to the underlying bonds, without having to directly hold the securities.

INVESTOPEDIA EXPLAINS 'Intermarket Spread Swap'

Opportunities for intermarket spread swaps exist when there are credit quality or feature differences between bonds. For example, if there is a wide credit spread between high credit quality corporate and treasury bonds, and the spread is expected to narrow, investors would swap government securities for corporate securities. One party would pay the yield on corporate bonds while the other the treasury rate plus the initial spread. As the spread widens or narrows, the parties will begin to gain or lose on the swap.

RELATED TERMS
  1. Credit Rating

    An assessment of the credit worthiness of a borrower in general ...
  2. Swap

    Traditionally, the exchange of one security for another to change ...
  3. Sector

    1. An area of the economy in which businesses share the same ...
  4. Intermarket Spread

    The simultaneous purchase of a given delivery month of a futures ...
  5. Yield

    The income return on an investment. This refers to the interest ...
  6. Workout Period

    The period of time when temporary yield discrepancies between ...
Related Articles
  1. Are High-Yield Bonds Too Risky?
    Bonds & Fixed Income

    Are High-Yield Bonds Too Risky?

  2. Are Derivatives Safe For Retail Investors?
    Options & Futures

    Are Derivatives Safe For Retail Investors?

  3. An Introduction To Swaps
    Options & Futures

    An Introduction To Swaps

  4. The Advantages Of Bond Swapping
    Bonds & Fixed Income

    The Advantages Of Bond Swapping

comments powered by Disqus
Hot Definitions
  1. Letter Of Credit

    A letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. ...
  2. Due Diligence - DD

    1. An investigation or audit of a potential investment. Due diligence serves to confirm all material facts in regards to ...
  3. Certificate Of Deposit - CD

    A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate ...
  4. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  5. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
  6. Ratio Analysis

    Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items ...
Trading Center