#bonds #finance #yield-to-maturity #z-spread
Given a single series of
nominal cash flows (like a riskless bond). If these payments are discounted to
net present value with a static treasury yield curve the sum of their values will tend to
overestimate the market price of the priced instrument. The
parallel shift, which, if applied to the yield curve makes the
NPV of the anticipated receipts equal to the market price is the
Yield curve spread (aka Z-spread).
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Z-spread - Wikipedia, the free encyclopediaage-backed securities, a model of typical repayment rates tends to be given; for example, the PSA formula for a particular Fannie Mae MBS might equate a particular group of mortgages to an 8 year amortizing bond with a 5% mortality per annum. <span>This gives a single series of nominal cash flows (like a riskless bond). If these payments are discounted to net present value with a static treasury yield curve the sum of their values will tend to overestimate the market price of the MBS. The parallel shift, which, if applied to the yield curve makes the NPV of the anticipated receipts equal to the market price is the Yield curve spread.
The Z-spread of a bond is the number of basis points one needs to add to the Treasury spot rates yield curve, so that the NPV of the bond cash flows (using the adjusted yield curve) equa Summary
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