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 ratesĀ  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
Credit unions Credit unions are non-profit institutions jointly organised and owned by their members (depositors). Their main objective is to satisfy the depository and lending

Problem: i) Assume a firm buys a new tooling machine for Rs 2000,000, installation costs net of taxes are Rs 300,000. An existing asset has a book value of Rs 400,000 and the

Pension Reforms On January 1, 2004, Pension Funds have come into force in India. Government servants will have to subscribe to them. The new pension fund system is primarily dr

Q. What is the rationale of the double-play strategy? The hedge funds deploy a double-play strategy in order to engineer steep increases in interest rates and steep declines in


Q. Show Certificates of Deposits? Certificates of Deposits: Certificate of deposits is papers issued by banks acknowledging fixed deposits for a specified period of time. CPs i

T = 520O per week. L=60000. Standard deviation = 7500 R =0.0004.F =50.Find the optimal average cash balance base don the miller orr model

Operating segments An operating segment is a component of an organisation It engages in business activities from that it can earn revenues and incur expenses(this also c

Expalin about the Non-Convertible Debentures (NCDs) NCDs are plain debenture securities issued by corporations. They are normally medium term in nature, maturing between 1 to 8

Does the shareholders' equity represent the savings a company has accumulated through the years? No. The number which shows in the Shareholder's Equity of a company that was fo