OAS spread

CFA Level II
#1

what is the z spread, OAS spread? Thanks.

#2

z-spread (static spread) adds the same amount to the treasury spot rate curve so that the PV of the cash flows = the market price. OAS removes the option.

#3

OAS spread = Z spread - option cost remember when you remove the option that the OAS spread gives you a better comparison on two bonds liquidity risks

#4

and credit risk if compared to treasuries.

#5

indeed

#6

so, OAS spread account for credit risk and liquidity risk? Thanks. as I searched, OAS account for option. Niblita75 Wrote: ------------------------------------------------------- > and credit risk if compared to treasuries.

#7

yes if the benchmark is treasuries or industry…BUT if benchmark is the issuing company (since credit is the same) the OAS spread is only for liquidity

#8

Only accounts for credit risk above a benchmark if the benchmark is a higher credit rating.

#9

so, which spread account for embedded option , llike callable bond or putable bond? Thanks. mwvt9 Wrote: ------------------------------------------------------- > Only accounts for credit risk above a benchmark if > the benchmark is a higher credit rating.

#10

OAS