Yield spread measures relative to a spot rate curve, Financial Management

Nominal spread of a non-treasury bond can be defined as the difference between the bond's yield and the yield to maturity of a benchmark treasury coupon security. For example, let us consider a 10-year bond. Assume that the yield to maturity of the Treasury bond is 7% and that of the non-treasury bond is 8.5%. Then, the normal spread would be 150 basis points (8.5% - 7%).

The two main drawbacks of this Spread are:

  • The term structure of the spot rates¬† are not considered in both the bonds.

  • In case of callable and/or putable bonds, the cash flows of the non-treasury bonds may be altered due to the expected interest rate volatility.

Posted Date: 9/10/2012 2:39:01 AM | Location : United States







Related Discussions:- Yield spread measures relative to a spot rate curve, Assignment Help, Ask Question on Yield spread measures relative to a spot rate curve, Get Answer, Expert's Help, Yield spread measures relative to a spot rate curve Discussions

Write discussion on Yield spread measures relative to a spot rate curve
Your posts are moderated
Related Questions
Citilink has just completed its 2010/11 management accounts. The directors are going to review the financial statements in the next board meeting. You have to prepare a FINANCIAL

Taxonomy of financial intermediaries We start by looking at the USA, the largest economy and financial system in the world. Subsequently we will turn to other countries. In the

QUESTION The Stock of Max Ltd performs relatively well compared to other stocks during recessionary periods. The stock of Bax Ltd, on the other hand, does well during growth p

State the term nature of financial instruments. Nature of financial instruments (securities): Financial instruments (termed as securities) can be classifies in two broad

The UK Pension Fund System The UK Pension system is a three pillar pension system. A flat-rate first-tier pension is provided by the state and is known as the Basic State Pensi

Put Option This is a right which is granted in exchange for an agreed-upon sum to sell property. Options are mostly used frequently in securities transactions it also used stoc

V ariable Costs It is an expense that varies directly with changes in business activities for example the cost of raw materials rise and decreases as the volume of producti

Suppose spot Swiss franc is $0.7000 and the six-month forward rate is $0.6950.  What is the minimum price which a six-month American call option along with a striking price of $0.6

explain participating budgeting and slow budgeting.

The collaterals used in the repo market are high quality securities; but they are also not free from credit risk. In our earlier example, we see the dealer borrow