What is 'Intermarket Sector Spread'

Intermarket sector spread is the difference in yields between two fixed-income securities with the same maturity, but originating from different investment sectors. As with any type of yield spread, this can help investors compare the potential return between two different types of investment securities, which also implies the comparative levels of risk involved with the two options. The common types of pairings involved with a typical intermarket sector spread evaluation will depend on the type of market involved.

Intermarket sector spreads in the bond market, for example, often occur between corporate bonds and government bonds with the same maturity

BREAKING DOWN 'Intermarket Sector Spread'

Intermarket sector spread can involve a wide variety of different combinations and configurations, given the assortment of available sectors.

The U.S. bond market is classified in issuer-based sectors. Each particular sector, and the bonds they offer, can have their own individual pros and cons. Government bonds, for example, are generally considered more secure and have a lower level of risk, which in turn means they generally don’t offer a high level of return and would appeal most to a conservative. Risk-averse investor. Bond indices track and monitor the performance of bond portfolios within that particular sector.

The primary divisions include government-issued securities and corporate-affiliated securities. Specifically, 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.

Intermarket Sector Spread and Other Yield Spreads

Intermarket sector spread is one type of yield spread. The yield spread is a critical piece of data or financial metric that investors will consider when evaluating the level of expense for a group of securities.

Spreads tend to narrow or tighten when the economy is growing. By contrast, 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. That could be viewed as an internal market spread, whereas an intermarket sector spread is an external comparison.

  1. Yield Spread

    A yield spread is the difference between yields on differing ...
  2. Nominal Yield Spread

    The nominal yield spread is the difference between a Treasury ...
  3. Ask

    The ask is the price a seller is willing to accept for a security. ...
  4. Spread Indicator

    The difference between the bid and ask price is known as the ...
  5. Reduced Spread

    A reduced spread is a lessening of the difference between the ...
  6. Buy A Spread

    Buying a spread is an options strategy involving buying and selling ...
Related Articles
  1. Trading

    Intermarket relationships: Following the cycle

    Learn more about the interactions between commodity, bond, stock and currency markets.
  2. Trading

    Trading Calendar Spreads in Grain Markets

    Futures investors flock to spreads because they hold true to fundamental market factors.
  3. Investing

    How To Calculate The Bid-Ask Spread

    It's very important for every investor to learn how to calculate the bid-ask spread and factor this figure when making investment decisions.
  4. Trading

    S&P 500 Options On Futures: Profiting From Time-Value Decay

    Writing bull put credit spreads are not only limited in risk, but can profit from a wider range of market directions.
  5. Trading

    Spread-to-Pip Potential: Which Pairs Are Worth Day Trading?

    Learn how spreads play a significant factor in profitable forex trading. Find out when it's worth trading and when it isn't.
  6. Investing

    The Bank Stocks Have Come Too Far Too Fast

    The bank sector has been buoyed by expectations of higher interest rates, but the rally justified?
  1. What is spread hedging?

    Learn about one of the most common risk-management strategies options traders use, called spread hedging, to limit exposure ... Read Answer >>
  2. Which factors most influence fixed-income securities?

    Learn about the main factors that impact the price of fixed-income securities, and understand the various types of risk associated ... Read Answer >>
Trading Center