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. Credit Spread

    1. The spread between Treasury securities and non-Treasury securities ...
  3. Yield

    The income return on an investment. This refers to the interest ...
  4. Bond Swap

    Selling one debt instrument in order to use the proceeds to purchase ...
  5. Swap

    Traditionally, the exchange of one security for another to change ...
  6. Workout Period

    The period of time when temporary yield discrepancies between ...
RELATED FAQS
  1. How do companies benefit from interest rate and currency swaps?

    An interest rate swap involves the exchange of cash flows between two parties based on interest payments for a particular ... Read Full Answer >>
Related Articles
  1. Bonds & Fixed Income

    Are High-Yield Bonds Too Risky?

    Despite their reputation, the debt securities known as "junk bonds" may actually reduce risk in your portfolio.
  2. Options & Futures

    Are Derivatives Safe For Retail Investors?

    These vehicles have gotten a bad rap in the press. Find out whether they deserve it.
  3. Options & Futures

    An Introduction To Swaps

    Learn how these derivatives work and how companies can benefit from them.
  4. Bonds & Fixed Income

    The Advantages Of Bond Swapping

    This technique can add diversity to your portfolio and lower your taxes. Find out how.
  5. Options & Futures

    Get Active In Your Bond Portfolio

    Find out why being a couch potato with your bonds actually could be mashing your results.
  6. Investing

    How Swaptions Can Reduce Risk in Portfolios

    How can investing in Swaptions reduce risk in portfolios.
  7. Options & Futures

    Give Yourself More Options With Real Estate Options

    Real estate options have many benefits, including a smaller initial capital requirement.
  8. Economics

    What Would Happen If Interest Rates Rise?

    This time around, while U.S. long-term yields have rebounded from their January lows, rates have generally been lower than where they ended 2014.
  9. Investing

    Strategies To Position Your Bond Portfolio

    Fixed income investors may not be able to see them all right now, but important trends are stirring on the investment horizon.
  10. Options & Futures

    How to Use Commodity Futures to Hedge

    Both producers and consumers of commodities can use futures to hedge. We explain, using a few examples, how to achieve commodity hedging with futures.

You May Also Like

Hot Definitions
  1. Subsidy

    A benefit given by the government to groups or individuals usually in the form of a cash payment or tax reduction. The subsidy ...
  2. Sunk Cost

    A cost that has already been incurred and thus cannot be recovered. A sunk cost differs from other, future costs that a business ...
  3. Technical Skills

    1. The knowledge and abilities needed to accomplish mathematical, engineering, scientific or computer-related duties, as ...
  4. Prepaid Expense

    A type of asset that arises on a balance sheet as a result of business making payments for goods and services to be received ...
  5. Gordon Growth Model

    A model for determining the intrinsic value of a stock, based on a future series of dividends that grow at a constant rate. ...
  6. Cost Accounting

    A type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step ...
Trading Center