It is more accurate than simply comparing a bond’s yield to maturity to a benchmark. The option-adjusted spread (OAS) measures the difference in yield between a bond with an embedded option, such as an MBS, with the yield on Treasuries.Treasuries, where it is called the credit spread. Some analysts refer to the yield spread as the “yield spread of X over Y.” This is usually the yearly percentage return on investment of one financial instrument minus the annual percentage return on investment of another. ![]() Yield spreads are commonly quoted in terms of one yield versus that of U.S. This difference is most often expressed in basis points (bps) or percentage points. A yield spread is the difference between yields on differing debt instruments of varying maturities, credit ratings, issuer, or risk level, calculated by deducting the yield of one instrument from the other.Because of this, spreading is a very flexible tool used by traders. Spreads can be constructed in any number of ways, and so a trader can use a spread strategy to profit from a bullish, bearish, or sideways market, or if the spread widens vs.
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