(1)I’m analyzing IBM 5 year callable bond, is required OAS of this bond =Z-spread of IBM 5 year normal bond with same coupon rate? (2)when I calculate the actual OAS of this coupon bond, should I use US treasury 5 year spot rate or IBM 5 year bond rate as benchmark? (3)if USA increase interest rate, why supply of US dollar is decreasing? (4), my portfolio includes 20% of 2 year IBM bond, key rate duration=1, 80% of 3 year IBM bond, key rate duration=2, is my portfolio duration=20%*1*2+80%*2*3? (5), when we calculate effective duration of IBM callable bond, should we use T-bond as benchmark or IBM normal bond rate as benchmark? Thanks

my dear firends, pls help

1). Yes required OAS on IBM callable bond will be Z-spread on other IBM straight bond with same Coupon, Maturity, Covenants and LIQUIDITY. 2) You will be calculating OAS using Binomial Model. Model uses Forward Rates not Spot Rates. 3) Supply of US Dollars (credit available in the economy, if that is what you mean), depends on many more macroeconomic fundamentals. Not just the Interest Rates. Investor Confidence, Risk Aversion levels would be some of them to name. 4) Yes. 5) Again, since you are talking of benchmark, i am assuming you are using binomial model. Once, you have adjusted Price from the model to the market price of Callable Bond, (that is you have adjusted forward interest rates to do price adjustment, then, for calculation of effective duration, it does not matter what you used as the benchmark.

in # 4, why are we including the maturities in the effective duration calculation?

Sorry, intelo, i didnt see maturities in his calculation. There should be no maturities there. Portfolio duration should be 20%*1 + 80%*2.