Difference between an intermarket and intramarket sector spread

by Jack Travers.
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The bond market in the US isclassified into sectors based on the type of issuer.

  • US government sector.
  • US government agency sector.
  • Municipal sector.
  • Corporate sector: the subsectors are industrial companies, utility companies, finance companies, and banks.
  • Mortgage sector.
  • Asset-backed securities sector: subsectors are credit card receivables, home equity loans, automobile loans, manufactured housing loans, and student loans.
  • Foreign sector: subsectors are sovereign, supranational, and corporate.

The intermarket sector spread is the yield spread between theinterest rate offered in two sectors of the bond market with the same maturity.The most common one is the yield spread between Treasury securities and somesector of the non-Treasury market with the same maturity.

The intramarket sector spread is the spread between two issues within a market sector. For example, thespread with AAA-rated corporate bonds and BBB-rated corporate bonds is anintramarket sector spread.

The yield spread typically increases with maturity. The factors thataffect the intermarket and intramarket yield spreads in addition to maturityare:

  1. the relative credit risk of the two issues
  2. the presence of embedded options
  3. the liquidity of an issue
  4. the taxability of the interest received by investors
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