OAS

CFA Level II
#1

Can somebody please give a clear ruling decision for OAS spread relative to Treasury, Sector, and Issuer specific benchmark when OAS < 0, > 0, and = 0 . Thanks in advance. Anish

#2

What question are you asking here?

#3

Wow. I dont know what you’re asking either, but just remember you want a high OAS and low option cost. I wish I could give you more but…

#4

The fig is on pg 73, book 5, schweser… it says if “OAS > 0” , the security is rich as compared to Treasury if actual < required; Cheap if actual > required. Similar for Sector!! and then it says if “OAS < 0” , the security is rich as compared to Treasury… which one is it? or there is a condition when OAS > 0 ?? Thanks

#5

Absolutely. If OAS(actual) < 0, then OAS(actual) < OAS(required), so it is expensive. What is problematic here?

#6

i think he’s referring to the super confusing table in the schweser text. it basically says, if the OAS < 0, then the stock is overpriced A positive OAS on the other hand can be considered undervalued or overvalued depending on whether the comparative benchmark OAS is higher or lower

#7

You should read it in the CFAI books, makes it much clearer, and I do think OAS is an important concept to fully grasp for the exam as I’m sure it will convert into an easy couple points somewhere. I knew I was weak in fixed income so I reread the LI material on OAS and Z spreads and then read the LII material and it cleared that there material right up.

#8

anishcandy Wrote: ------------------------------------------------------- > The fig is on pg 73, book 5, schweser… > > it says if “OAS > 0” , the security is rich as > compared to Treasury if actual < required; Cheap > if actual > required. Similar for Sector!! > > and then it says if “OAS < 0” , the security is > rich as compared to Treasury… > > which one is it? or there is a condition when OAS > > 0 ?? > > Thanks rich means overpriced … probably the terminology is confusing …

#9

Thank you all. I got the point.

#10

mumukada Wrote: ------------------------------------------------------- > i think he’s referring to the super confusing > table in the schweser text. > > it basically says, if the OAS < 0, then the stock > is overpriced > > A positive OAS on the other hand can be considered > undervalued or overvalued depending on whether the > comparative benchmark OAS is higher or lower This helped.Thanks Edit: So if OAS is positive and less than the benchmark OAS then the security is overpriced(rich)? correct?