Intramarket Sector Spread

You know that game you played as a kid, where you looked at two nearly identical pictures and had to pick out the tiny differences? Oh, the dog on the left has two spots on his paw and the one on the right just has one...that sort of thing.

The intramarket sector spread works kind of like that, only with bonds. You take two bonds with the same maturity from the same sector (a 5-year bond issued by Ford vs. a 5-year bond issued by GM, for example). Then you compare the interest rates being paid by both debt securities. That difference, the spread between the rates, gives the intramarket sector spread.

It provides a way to compare creditworthiness of two companies. Since both companies are in the same industry and both bonds require the same time commitment, the difference between the interest rates comes down to the individual companies.

The firm that has to offer higher rates (meaning they have to pay investors more to get them to fork over their money) is seen as a riskier bet. The wider the spread, the bigger the difference in perceived creditworthiness.