2nd October 2019

analystnotes

12

What is the G spread?

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G spread: the spread over or under a government bond rate, also known as the nominal spread. For example, suppose a 10-year, 8%-coupon bond is selling at $104.19, yielding 7.40%. The 10-year Treasury bond (6% coupon rate) has a YTM of 6.00%. Therefore, the G spread is 7.40% - 6.00% = 1.40%, or 140 basis points.

Also, what is the I spread?

The Interpolated Spread or I-spread or ISPRD of a bond is the difference between its yield to maturity and the linearly interpolated yield for the same maturity on an appropriate reference yield curve. The I-spread is often a rough indication of the risk premium for an investment product.

What is an ASW spread?

Definition ASW. The difference between the yield of a bond and the LIBOR curve, expressed in basis points. The asset-swap spread is designed to show the credit risk associated with the bond.

What is OAS spread?

Option-adjusted spread (OAS) is the yield spread which has to be added to a benchmark yield curve to discount a security's payments to match its market price, using a dynamic pricing model that accounts for embedded options. OAS is hence model-dependent.

1

What is a spot rate yield curve?

The spot rate treasury curve is a yield curve constructed using Treasury spot rates rather than yields. The spot rate Treasury curve can be used as a benchmark for pricing bonds. Alternatively, the Treasury curve can be calculated by using Treasury coupon strips.

2

What is the zero curve?

A zero curve is a special type of yield curve that maps interest rates on zero-coupon bonds to different maturities across time. Zero-coupon bonds have a single payment at maturity, so these curves enable you to price arbitrary cash flows, fixed-income instruments, and derivatives.

3

What does it mean to ride the yield curve?

DEFINITION of 'Riding the Yield Curve' Riding the Yield Curve is a trading strategy that involves buying a long-term bond and selling it before it matures so as to profit from the declining yield that occurs over the life of a bond.

4

What is rolling down the yield curve?

Sometimes you'll hear investors talk about rolling down the yield curve. The term refers to a strategy of selling bonds before they mature in an effort to profit from rising prices. In bond markets, prices rise when yields fall, which is what tends to happen as bonds approach maturity.

5

What is on the run Treasury?

On-the-run Treasuries are the most recently issued U.S. Treasury bonds or notes of a particular maturity. "On-the-run" Treasuries are the opposite of "off-the-run" Treasuries, which refer to Treasury securities that have been issued before the most recent issue and are still outstanding.

6

What is a when issued stock?

When issued (WI) is a transaction that is made conditionally because a security has been authorized but not yet issued. Treasury securities, stock splits, and new issues of stocks and bonds are all traded on a when-issued basis.

7

What is a treasury strips?

Treasury STRIPS are fixed-income securities sold at a significant discount to face value and offer no interest payments because they mature at par. STRIPS is an acronym for Separate Trading of Registered Interest and Principal of Securities.

8

Are Treasury strips taxed?

State Income Taxes. Interest earned from Treasury securities is exempt from state and local income taxes. The imputed Treasury STRIP interest you must report each year for your federal taxes is also exempt. Do not include the 1099 interest from your STRIP investments in your taxable income when filing state taxes.

9

Are Treasury notes Zero Coupon?

Other Treasury securities, such as Treasury bills (which have maturities of one year or less) or zero-coupon bonds, do not pay a regular coupon. Instead, they are sold at a discount to their face (or par) value; investors receive the full face value at maturity.

10

How often is interest paid on Treasury notes?

The coupon rate determines the interest payments. The 2.75 percent is the annual coupon. The bond will pay $27.50 per year for every $1,000 in face value that you own. The semiannual coupon payments are half that, or $13.75 per $1,000.

11

What is zero interest bond?

A zero-coupon bond is a bond that makes no periodic interest payments and is sold at a deep discount from face value. The buyer of the bond receives a return by the gradual appreciation of the security, which is redeemed at face value on a specified maturity date.

12

Do you pay taxes on interest on a zero coupon bond?

Zero coupon bonds are bonds that do not pay interest during the life of the bonds. In addition, although no payments are made on zero coupon bonds until they mature, investors may still have to pay federal, state, and local income tax on the imputed or "phantom" interest that accrues each year.

13

What is the duration of the zero coupon bond?

The duration of a zero coupon bond is equal to its maturity. Duration is a weighted average of the maturities of all the income streams of a bond or a portfolio of bonds. Therefore if there are coupons, the duration will be less than the maturity, and if there are no coupons it will be equal to its maturity.

14

Why do bond prices go down when interest rates go up?

Conversely, if interest rates were to fall after your purchase, the value of your bond would rise because investors cannot buy a new issue bond with a coupon as high as yours. In this case, your bond would be worth more than $1,000. Hence, it would trade at a premium.

15

What is the yield to maturity?

Yield to maturity is the discount rate at which the sum of all future cash flows from the bond (coupons and principal) is equal to the current price of the bond. The YTM is often given in terms of Annual Percentage Rate (A.P.R.), but more often market convention is followed.

16

What does YTM stand for?

YTM means "You're The Man" So now you know - YTM means "You're The Man" - don't thank us. YW! What does YTM mean? YTM is an acronym, abbreviation or slang word that is explained above where the YTM definition is given.

17

What is the difference between yield and coupon?

A coupon rate is the yield paid by a fixed-income security; a fixed-income security's coupon rate is simply just the annual coupon payments paid by the issuer relative to the bond's face or par value. The coupon rate is the yield the bond paid on its issue date.

18

What is the maturity date?

In finance, maturity or maturity date refers to the final payment date of a loan or other financial instrument, at which point the principal (and all remaining interest) is due to be paid. The term fixed maturity is applicable to any form of financial instrument under which the loan is due to be repaid on a fixed date.

19

What is the difference between coupon and yield?

A: A bond's coupon rate is the actual amount of interest income earned on the bond each year based on its face value. A bond's yield to maturity (YTM) is the estimated rate of return based on the assumption that it will be held until its maturity date and not called.

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