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FI Reading 24 - Example 3

Can someone please explain the OAS concept in example 3? Why the OAS of Charter Communication is lower than other spreads? This bond is callable and call feature benefits issuer, so investor should ask for the higher spread, but instead OAS is lower by almost 70 basis points here.

Thanks.

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sp03673 wrote:
Can someone please explain the OAS concept in example 3? Why the OAS of Charter Communication is lower than other spreads? This bond is callable and call feature benefits issuer, so investor should ask for the higher spread, but instead OAS is lower by almost 70 basis points here.

You misunderstand OAS.

OAS is a spread associated with the underlying option-free bond; the fact that it’s callable doesn’t matter.

Simplify the complicated side; don't complify the simplicated side.

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