medium · Debt Capital Markets
Why is the 'Z-spread' often considered a more accurate measure of a bond's relative value than a simple 'G-spread'?
- It automatically adjusts for the value of embedded options like calls or puts.
- It accounts for the entire shape of the benchmark yield curve by discounting each cash flow at its specific spot rate.
- It is based on the current market price of the bond rather than the face value.
- It is expressed in terms of annual yield rather than basis points over a treasury.
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