OAS Spread Help

Hi guys! Quick question on page 299 Vol.4.

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

Looking at Question nr 12 (in the following page): the answer is wrong…why?

I have understood that OAS spread is lower than other spread (G-I-Z) in a callable bond and that in a non-callable bond all the spreads are more o less aligned…then I would that if two bonds are comparable, the one with optionality should have lower OAS…

Thanks in advance!


See CFA Level 3 errata here

  • In section 4.1.4 (page 265 of print), the first bullet point, last sentence should read: “As
    another example, callable debt often has a larger z-spread than otherwise comparable
    non-callable debt.”

  • In the information for practice problems 10–15 (page 299 of print), Comment 1 should
    say “Callable debt has a smaller z-spread than comparable non-callable debt.”

Many thanks! I got it…should review de errata!

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OAS removes the effect of the embedded options.

Therefore, callable debt should have the same OAS as comparable non-callable debt.