Bonds- Relative valuation
I work in Credit research division and we generally do relative valuation of bond by taking in to account modified duration (x axis) and G-spread(Y axis) of the bonds of the company we are working on and its peers. And finally we plot it on graph and make the trendline. Now can someone please explain that what all interpretation we can make from this graph?
For eg let’s say that company has majority of its bond is above(or below) the trendline? So at very high level can we say that that its bonds are cheaper(or expensive)? Also what other interpretation and how a fund manager will take a call of investing in the bond on the basis of this chart?
I hope I’m clear