Static Spread

DEFINITION of 'Static Spread'

The constant yield spread which when added to the point on the spot rate Treasury curve where a cash flow from a bond is received will make the price of the bond equal to the present value of its cash flows. In other words, each cash flow is discounted at the appropriate Treasury spot rate plus the static spread. The static spread is also known as a zero-volatility or Z-spread.

BREAKING DOWN 'Static Spread'

Static or Z-spread calculations are frequently used in mortgage-backed securities and other bonds with embedded options valuation. An option adjusted spread calculation, which is frequently used to value bonds with embedded options, is essentially a static spread calculation based on multiple interest rate paths and the prepayment rates associated with each interest rate path.

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RELATED FAQS
  1. What is Z-spread and option adjusted credit spread?

    Read about the uses of and connection between the zero-volatility spread (Z-spread) and the option-adjusted credit spread ... Read Answer >>
  2. What are the most popular and useful measures of credit spread?

    Learn about the different types of credit spread measures that measure risk, including the zero-volatility spread and the ... Read Answer >>
  3. What is the difference between an option-adjusted spread and a Z-spread in reference ...

    Learn about the difference between the Z-spread and option-adjusted spread valuations of future cash flows for bonds, and ... Read Answer >>
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