标题: Nominal Spread Vs Z-spread [打印本页] 作者: LiquidAssets10 时间: 2011-9-21 08:37 标题: Nominal Spread Vs Z-spread
Hi friends,
Could you please help me understand the below statement -
"The divergence between nominal spread and z-spread will be greater as the yeild curve becomes steeper".
Kindly validate if my understanding is correct please!
Since yeild curve is steeper, the price of the bond decreases.
Nominal spread is the spread when added to one point on the yield curve which makes the cash flows of the security = market price. Whereas Z-spread is added across the entire spot rate curve (instead of one point in case of nominal) which makes cash flows of security = market price. So Nominal spread has to have a higher value to discount the cashflow to lower price of security. Where as since Z-spread is added across entire spot rates, the value is lower compared to Nominal spread.
