spread products

hi i read somewhere that if a manager expects spreads to narrow for all spread product sectors , she should underweigh treasuries and overweight allocations to spread products such as mortgage, asset-backed and CMBS sectors.

do credit sectors not belong to spread products?


Except for US Treasuries, all bonds are spread products.

even equities are technically spread products (dividend yield + growth over Rf).

typically wen spreads narrow it basically means the market is putting risk on. HY debt offerrings are getting done. LBOs and heavily levered companies are able to refinance. markets are rallying, spreads are narrowing and everyone is putting risk on.

when spreads blow out (widen) everyone is taking risk off and getting conservative w/ their risk exposure. yields widen, etc.

that answer included an extra 75 bps rising of IR in the long-term part of the yield curve and a 25 bps rise in the short-term part of the curve.

that’s why they said that treasuries (LT) should be underweighted as they were expected to decrease with IR increase.

MOCK 2010 Item set Q36