OAS on a straight bond is estimated to be 48bps....which is most accurate?

1 - OAS on callable bond will be greater than 48 and OAS on CB will be less than 48

2 - OAS of the CV will be less than 48bps while the OAS of the putable bond will be greater

2 - OAS of all three will be the same.

I cannot understand the correct answer here!!! FREAKING NO CLUE!

I eliminated A, since the OAS for a callable bond will be less than the z-spread!!! OH GOD I HATE FIXED INCOME!

would a putable bond have a greater OAS spread than a straight bond?

The OAS is the spread _ when the option value is removed _; with the same underlying (straight, option-free) bond, the OAS should be the same.

I can’t visualize it!

This is how I understand these concepts:

I will list the spread over the treasury yield curve ( starting with the nominal)

  2. Z-spread
  3. OAS
  4. Treasury yield

The nominal has option + Credit + Liquidity + option

Z = Credit + Liquidity + option

OAS = Credit + Liquity

If the spread is the difference between the z - spread - OAS = option cost

assuming a callable bond, Z-spread>OAS = option cost

assuming a putable bond, z-spread

I see so a callable / putable /’ straight bond, will have difference option costs, but when the option is removed, they will all have the same spread over the treasury yield.???

This statement, along with your post (about OAS) in another thread, helped me actually understand what I read about the OAS (it seems I was reading pretty absent-mindedly). Well, they do say reading is a passive activity…thanks!