The difference between the 2 will be greater for: 1-zero coupon treasury sec 2-MBS in flat yield curve environment 3-US Treas. Sec with short maturity in a flat yield curve environment 4-MBS in a steep upward sloping yield curve environment I understand the definitions but I don’t know in what case would the difference be greater.
I’d say #4, since it has a steep upward sloping yield curve. The z-spread would take the diff spot rates into consideration & the nominal spread wouldn’t.
the steeper curve& larger prepayment risk, the greater the difference will be. it’s on the book, can’t tell the exact page number though, since i dont have it with me rite now
4 is right
easygoing is right