The static spread is:
A) the difference between the yield on a zero coupon bond and the yield on a coupon bond.
B) the difference between a fixed-rate yield and a floating-rate yield.
C) the difference between the yield on new Treasury bills versus new Treasury bonds.
D) the difference between expected inflation and the current Treasury bill rate.
E) the difference between the yield on a security with options and the yield on a maturity-matched zero coupon Treasury security.

Question

Quizplus · Accepted Answer

The static spread, also known as the option-adjusted spread (OAS), is the difference between the yield on a security with embedded options (such as callable or putable bonds) and the yield on a maturity-matched zero coupon Treasury security. This spread compensates investors for the risks associated with the embedded options in the security.

The Static Spread Is