Financial Terms
Quality spread

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Definition of Quality spread

Quality Spread Image 1

Quality spread

Also called credit spread, the spread between Treasury securities and non-Treasury securities
that are identical in all respects except for quality rating. For instance, the difference between yields on
Treasuries and those on single A-rated industrial bonds.

Related Terms:

Credit spread

Related:quality spread

accepted quality level (AQL)

the maximum limit for the number of defects or errors in a process

Bull spread

A spread strategy in which an investor buys an out-of-the-money put option, financing it by
selling an out-of-the money call option on the same underlying.

Cost of quality

The difference between the actual costs of production, selling and service and the costs that would be incurred if there were no failures during production or usage of products or services.

Effective spread

The gross underwriting spread adjusted for the impact of the announcement of the common
stock offering on the firm's share price.

Flight to quality

The tendency of investors to move towards safer, government bonds during periods of high
economic uncertainty.

Gross spread

The fraction of the gross proceeds of an underwritten securities offering that is paid as
compensation to the underwriters of the offering.

Quality Spread Image 2

Horizontal spread

The simultaneous purchase and sale of two options that differ only in their exercise date.

Intermarket spread swaps

An exchange of one bond for another based on the manager's projection of a
realignment of spreads between sectors of the bond market.

Intramarket sector spread

The spread between two issues of the same maturity within a market sector. For
instance, the difference in interest rates offered for five-year industrial corporate bonds and five-year utility
corporate bonds.

Maturity spread

The spread between any two maturity sectors of the bond market.

Option-adjusted spread (OAS)

1) The spread over an issuer's spot rate curve, developed as a measure of
the yield spread that can be used to convert dollar differences between theoretical value and market price.
2) The cost of the implied call embedded in a MBS, defined as additional basis-yield spread. When added to the
base yield spread of an MBS without an operative call produces the option-adjusted spread.

process quality yield

the proportion of good units that resulted from the activities expended


all the characteristics of a product or service that
make it able to meet the stated or implied needs of the
buyer; it relates to both performance and value; the pride
of workmanship; it is conformance to requirements

quality assurance

the process of determining that product
or service quality conforms to designated specifications
usually through an inspection process

quality audit

a review of product design activities (although
not for individual products), manufacturing processes and controls, quality documentation and records, and management philosophy

quality control

the implementation of all practices and policies
designed to eliminate poor quality and variability in the
production or service process; it places the primary responsibility
for quality at the source of the product or service

Quality option

Also called the swap option, the seller's choice of deliverables in Treasury Bond and Treasury
note futures contract. Related: cheapest to deliver issue

Relative yield spread

The ratio of the yield spread to the yield level.


1) The gap between bid and ask prices of a stock or other security.
2) The simultaneous purchase and sale of separate futures or options contracts for the same commodity for delivery in different months.
Also known as a straddle.
3) Difference between the price at which an underwriter buys an issue from a firm
and the price at which the underwriter sells it to the public.
4) The price an issuer pays above a benchmark fixed-income yield to borrow money.


For options, a combination of call or put options on the same stock
with differing exercise prices or maturity dates.


Difference between public offer price and price paid by underwriter.


The difference between items typically between two rates of interest or currencies.

Spread income

Also called margin income, the difference between income and cost. For a depository
institution, the difference between the assets it invests in (loans and securities) and the cost of its funds
(deposits and other sources).

Spread strategy

A strategy that involves a position in one or more options so that the cost of buying an
option is funded entirely or in part by selling another option in the same underlying. Also called spreading.


A computer program that organizes numerical data into rows and columns on a terminal screen,
for calculating and making adjustments based on new data.

TED spread

Difference between U.S. Treasury bill rate and eurodollar rate; used by some traders as a
measure of investor/trader anxiety.

total quality management (TQM)

a structural system for creating organization-wide participation in planning and implementing a continuous improvement process that exceeds
the expectations of the customer/client; the application
of quality principles to all company endeavors; it is also known as total quality control

Vertical spread

Simultaneous purchase and sale of two options that differ only in their exercise price. See:
horizontal spread.

Yield spread strategies

Strategies that involve positioning a portfolio to capitalize on expected changes in
yield spreads between sectors of the bond market.







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