static spread

static spread

(1) The difference between two values at a single point in time. For example, the difference between two yields.

(2) The calculated spread over the Treasury yield that the investor would realize from all of the cash flows produced by his investment if it is held to maturity. Those cash flows are each compared to the Treasury spot rate curve. Because the cash flows from a security are each compared to the Treasury yield curve, the static spread is a spread over the entire curve. Each of the cash flows from a bond is discounted to a present value using the spot Treasury rate with the same maturity as the cash flow. Those present values are then totaled. The static spread amount must be added to the discount rates obtained from the Treasury spot curve so that the sum of the discounted cash flows equals the bond's price.

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Part of Speech: noun
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Industry/Domain: Banking
Category: General banking
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