Analysis | Spread Tracking

Our research has shown that the wider the spread, the higher the market perceives the default risk to be. That's because the market will trade riskier bonds at lower prices which result in higher yields. Another way of saying this is that the market requires higher yields to compensate for the higher risk. Because all bonds in the same class should have about the same spread, any individual bonds in that class, whose spread is significantly greater or less, could indicate the market perceives the bond to be a risk (if greater), or buy opportunity (if less).

The spread of bonds in the same class is represented by the average daily spread of all the bonds in that class, which is considered to be the benchmark for that class. This capability will allow you to select bonds for tracking, and report the bond's spread and the spread of its benchmark periodically, for example every day or weekly. Alternatively, you can select trigger values representing differences between the bond and benchmark spreads you believe are significant enough to require you receive an alert when a trigger is exceeded. For example, suppose you select the trigger value at 100%, meaning that when the bond spread is 100% higher (double) the benchmark spread you will get an alert to consider selling the bond. So if the benchmark spread is 100 basis points, you will get a sell alert when the bond's spread is 200 basis points or higher.