Definition von Gearing, Spreads und Kurve in der Funktion Floating Rate Bond von RQuantLib
What is a spread in bonds?
The bond spread or yield spread, refers to the difference in the yield on two different bonds or two classes of bonds. Investors use the spread as in indication of the relative pricing or valuation of a bond.
What does widening bond spreads mean?
The direction of the spread may increase or widen, meaning the yield difference between the two bonds is increasing, and one sector is performing better than another. When spreads narrow, the yield difference is decreasing, and one sector is performing more poorly than another.
What does Tightening spreads mean?
In effect, widening credit spreads are indicative of an increase in credit risk, while tightening (contracting) spreads are indicative of a decline in credit risk.
What is spread duration of a bond?
Spread duration is the sensitivity of the price of a security to changes in its credit spread. The credit spread is the difference between the yield of a security and the yield of a benchmark rate, such as a cash interest rate or government bond yield.
What are the spreads?
Generally, the spread refers to the difference between two prices, rates, or yields. In one of the most common definitions, the spread is the gap between the bid and the ask prices of a security or asset, like a stock, bond, or commodity.
What is Term spread?
The term spread is the difference between interest rates on short- and long-dated government securities. It is often referred to as a predictor of the business cycle. In particular, inversions of the yield curve—a negative term spread—are considered an early warning sign.
What does yield spread indicate?
In finance, the yield spread or credit spread is the difference between the quoted rates of return on two different investments, usually of different credit qualities but similar maturities. It is often an indication of the risk premium for one investment product over another.
What happens when high yield spreads widen?
As the spread increases, the perceived risk of investing in a junk bond also increases, and hence, the potential for earning a higher return on these bonds increases. The higher yield bond spread is, therefore, a risk premium.
Why are yield spreads important?
Yield spread is used in order to calculate the yield benefit of two or more similar securities with different maturities. Spread is extensively used between the two & ten years treasuries which displays how much additional yield an investor can get by taking on the added risk of investing in long-term bonds.
What is the difference between yield and spread?
Two common metrics used in analyzing corporate bonds are yield — the amount of interest that a bond pays as a percentage of its price — and spread — the amount of interest that a bond pays over Treasuries (also known as the risk-free rate, because the U.S. government isn’t at risk of default as some companies are).
What is coupon spread?
Coupon Spreads are spreads that reflect the differences between bonds with different interest rate coupons. For example, the Government of Canada has issued two bonds that are due in 2008, one with a 10% coupon (Canada 10/08) and one with a 7% coupon (Canada 7/08).
What are spread products?
Spread product is the unfortunate term for taxable (as opposed to municipal) bonds that are not Treasury securities. Agency securities, asset-backed securities, corporate bonds, high-yield bonds and mortgage-backed securities are various types of spread product.
How is a bond spread calculated?
Subtract the lower interest rate from the higher interest rate. That will be the bond spread. This measurement is also called the yield spread. Yield spread can also be calculated between other debt securities, such as certificates of deposit.
What is spread to benchmark?
Spread is measured in basis points. Typically, it is calculated as the difference between the yield on a corporate bond and the benchmark rate. The yield on a government bond generally is considered to be a benchmark rate.
Which type of bond is usually the benchmark in spread calculation?
Benchmarks for Bonds
Some of the most common pricing benchmarks are on-the-run U.S. Treasuries (the most current series). Many bonds are priced relative to a specific Treasury bond. For example, the on-the-run 10-year Treasury might be used as the pricing benchmark for a 10-year corporate bond issue.
What is nominal spread?
A nominal yield spread is the difference between a Treasury and non-Treasury security with the same maturity. The spread is frequently used in pricing certain types of mortgage-backed securities.
What is the difference between T spread and G spread?
T-spread is the spread over the actual Treasury benchmark bond. G-spread, or nominal spread, is the spread over the exact interpolated point on the Treasury curve.
What is Z-spread CFA?
A Z-spread (zero-volatility spread) is based on the entire benchmark spot curve. It is the constant spread that is added to each spot rate such that the present value of the cash flows matches the price of the bond.
What is Z-spread and OAS?
Both the option-adjusted (OAS) and the zero-volatility spread (Z-spread) are useful to calculate the value of a security. In general, a spread represents the difference between the two measurements. The OAS and Z-spread help investors compare the yield of two different fixed-income offerings that have embedded options.
What is the difference between Z-spread and OAS?
As previously stated, the OAS is really an Option Excluded Spread. The Z-Spread is the spread that includes option risk and is therefore higher. Higher spread means higher discount rate which means lower Price.