Yield Spreads Over Benchmark Rates

Which of the following yield spreads over a benchmark rate is _most likely_ used by an analyst who is comparing multiple fixed-rate bonds?

Correct. Since corporate bonds in euro currency are priced over a euro interest rate swap benchmark, the I-spread, also known as the interpolated spread, represents the yield spread of a bond over the standard swap rate in the same currency with the same maturity.

Incorrect. The Z-spread is the zero-volatility spread. This is a constant premium that is added onto the benchmark spot curve and not to a benchmark rate. The premium forces the present value of all cash flows to be equal to the bond's market price.

Incorrect. The option-adjusted spread, also known as OAS spread, is a premium that is calculated on a callable bond. It is added onto the benchmark spot curve, not to a benchmark rate.

I-spread

Z-spread

Option-adjusted spread