Let’s talk about your G spread.
Deep dive into one of Bloomberg’s most popular fixed income function.
One of the most popular functions on the Bloomberg terminal. The yield and spread analysis function yas
Yas tells you everything you need and want to know about your bond. The G spread tells you your interpolated spread to government bonds.
If your 12/31/2028 IBM bond has a g spread of 150 basis points, it means that your bond has 5.25 (this was written September 2023) years to maturity. And is 150 basis points over the interpolated 5.25-year point on the treasury curve.
Why is this important? Tells you credit risk of the bond. The higher the g spread the more risky it is.
Other than this, the yas screen also gives you the spread to benchmark, the G,I, Z and OAS spreads. It also tells you duration figures. So, in short it tells you credit risk information as well as interest rate risk information. It’s a super intuitive to use function and everyone from a trader, portfolio manager, analyst, intern uses this function in different ways
Traders use this alongside other functions. They may pull up spreads in an excel spreadsheet and see what the spread is across multiple sectors/classes of bonds.
Portfolio managers do the same. So, both will look at relative valuation but in different ways. Traders will want to see if they want to purchase this bond based on how expensive/cheap this is compared to other bonds they could buy
Portfolio managers need to do this analysis to figure out whether the bond they are holding makes sense in comparison to the portfolio of holdings they have. Does it present less risk/more risk etc.
Mirror Mirror on the Wall. Who’s the fairest of all?
But this begs the question. In a Snow Whitesque query to the mirror on which spread is the fairest of them all, the popular ones are z and oas. You use z spread if you are looking at bonds with no options and oas (option adjusted spreads) for those that do have options.
Know that bonds are separated into both credit and interest rate risk information. Both are important. Credit risk tells you likelihood of default and the bond making its payments. IR risk tells you its sensitivity to interest rate changes.
That’s pretty much about it. Which is your fav spread?
