medium · Debt Capital Markets pricing-yields-curve
Why is the 'Z-spread' often considered a more accurate measure of a bond's relative value than a simple 'G-spread'?
- It automatically strips out and adjusts for the value of any embedded options, such as issuer call or put rights.
- It accounts for the entire shape of the benchmark yield curve by discounting each cash flow at its specific spot rate.
- It is computed directly from the bond's stated face value rather than from its prevailing current market price in trading.
- It is conveniently expressed as an annualized yield percentage rather than in basis points quoted as a premium over treasuries.
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