BFC2340 Study Guide - Final Guide: Embedded Option, United States Treasury Security, Yield Spread
8 Aug 2018
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Week 4 - factors affecting yields & interest rate term structures. The securities issued by the us government have no credit risk. Their yield to maturity is the base interest rate that investors will demand on a non- Yield spread = diff b/w the yields of any two bonds. Quoted in terms of basis points and given as an absolute value. Benchmark spread = one bond is a benchmark bond & the other is a non-benchmark bond. It reflects the compensation the market is offering for bearing the risks that a benchmark bond doesn"t have. Hence, the benchmark spread can be thought of as a risk premium. Factors that affect yield spread: the type of issuer. The bond market is classified into different market sectors which can be perceived to have different risks and rewards. Intermarket sector spread = the spread b/w two issues in different sectors.
