The Interpolated Spread, I-spread or ISPRD of a
bond is the difference between its
yield to maturity
The yield to maturity (YTM), book yield or redemption yield of a fixed-interest security is an estimate of the total rate of return anticipated to be earned by an investor who buys it at a given market price, holds it to maturity, and receives ...
and the
linearly interpolated yield for the same maturity on an appropriate reference
yield curve
In finance, the yield curve is a graph which depicts how the Yield to maturity, yields on debt instruments – such as bonds – vary as a function of their years remaining to Maturity (finance), maturity. Typically, the graph's horizontal ...
. The reference curve may refer to
government debt securities or
interest rate swap
In finance, an interest rate swap (IRS) is an interest rate derivative (IRD). It involves exchange of interest rates between two parties. In particular it is a "linear" IRD and one of the most liquid, benchmark products. It has associations with ...
s or other benchmark instruments, and should always be explicitly specified. If the bond is expected to repay some
principal before its final maturity, then the interpolation may be based on the
weighted-average life, rather than the maturity.
See also
*
Asset swap spread
The term asset swap has a number of different meanings:
*In accounting, it refers to an exchange of tangible for intangible assets.
*In finance, it refers to the exchange of the flow of payments from a given security (the asset) for a different ...
*
Option-adjusted 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 mode ...
*
Z-spread
The Z-spread, ZSPRD, zero- volatility spread, or yield curve spread of a bond is the parallel shift or spread over the zero-coupon Treasury yield curve required for discounting a predetermined cash flow schedule to arrive at its present market ...
References
Bond valuation
Fixed income analysis
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