1, Can you explain why nominal spread framework does not work well on comparing the relative attractiveness between fixed- and floating- rate markets while the swap spread works?
2, What is the spread used in spread options/forward and breakeven spread analysis?
Still waiting…especially for Q1.
OK, I’ll take a stab.
Using nominal (i.e. over UST) spreads can be problematic due to their relative lack of key rate maturities (e.g. only 1y, 2y, 10y, 20y rates for USTs). Swap spreads, by contrast, can be measured all along the curve (LIBOR or EURIBOR) for all maturities that you might need to use.
The spread can be whatever spread the particular situation or contract requires, i.e. whatever spread the question refers to.
Swap Spread + for Fix/Float Rate, European Markets (homogenous), American Markets (MBS).
When calcultating swap spread for a portfolio, ignore treasury and dont include it.
I know I didnt answer ur question directly but I hope that what I’ve mentioned add value.
thanks