Fixed income: OAS and issuer's bench mark income

hoangvu90

why OAS is zero when benchmark is issuer-specific? I think still could have some liquidity risk. thanks.

genuinecfa

it could..
they just assume it wont in these discussions.

lucasg85

hw0799 Wrote:
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> why OAS is zero when benchmark is issuer-specific?
> I think still could have some liquidity risk.
> thanks.


It is not always zero. It could have a positive or negative OAS compared to the issuer's benchmark. If its OAS=zero, it's fairly valued. If its OAS>zero, then its cheap and you should buy it, etc.

onelife1

i am pretty sure hw0799 was asking as to why OAS of 0 is cosidered fairly valued...
i am sure he knows OAS can be diff than 0..

ryanlb

i would guess that if you're comparing the bond to a similiar bond from the same issuer that also has an embedded option, the optionality will cancel each other out so OAS will = 0.

stalkey

yeah....

unless they choose a benchmark with very similar term and strucure. Different structure could impact the liquidity.
gulfcfa Wrote:
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> i am pretty sure hw0799 was asking as to why OAS
> of 0 is cosidered fairly valued...
> i am sure he knows OAS can be diff than 0..