What Is Marketweight?

'Marketweight' is a credit rating system for fixed-income instruments. The marketweight ranking system gives a subjective estimate of the accuracy of the current credit spread and determines whether an investment is attractive. The system includes three ranks: marketweight, overweight and underweight. The marketweight rating indicates that the current credit spread of an instrument is in line with expectations.

A fixed-income security deemed to be marketweight is said to offer a credit spread that's at or near the market's consensus.

Understanding Marketweight

Just as stocks may have a buy, sell or hold recommendation, this credit rating system will rate a debt instrument as overweight, underweight or marketweight. Being marketweight is similar to having a hold rating, whereas being overweight or underweight is equivalent to the buy and sell titles, respectively. Analysts will determine whether the current credit spread is an appropriate measure of risk for the investment and place a recommendation accordingly.

Just as equity securities, fixed-income instruments are separated by several categories. These factors include, among others, credit risk (or credit rating), geography, industry, yield, and maturity. Fixed-income securities add another layer of consideration for contingencies. Contingencies, such as a call-option and convertibility will further drive portfolio weighting decisions.

Fixed-income instruments such as investment-grade bonds might be described as being held at marketweight, meaning a portfolio is neither overweight nor underweight (allocated to) investment-grade bonds relative to a common benchmark. When a portfolio manager has a particular view, such as a bullish stance on bonds from the industrials sector, a portfolio can be slanted from the market's consensus by overweighting the portfolio to an overweight position in industrials bonds.