Fixed income EOC #12

Comment 1 Callable debt has a smaller OAS than comparable non-callable debt.

Comment 2 Benchmark corporate bond issues normally have wider spreads than older bonds of same issuer.

These two comments are incorrect according to the book.

But I can’t understand why these are incorrect…

Comment 1 : Isn’t callable bond OAS smaller than OAS of option free bond?

Comment 2 : no idea :frowning:

If the bonds are priced fairly, their OASs should be equal.

OAS removes the value of the option, leaving you with an option-free bond.

On-the-run bonds are generally more liquid than older bonds; they have narrower spreads.