Which spread number is actually being quoted?

"The bond trades at 200 over" is ambiguous. Over what, measured how? There are several standard spread measures, they give different answers for the same bond, and comparing two bonds on different measures produces confident nonsense.

The family, from crude to careful

• G-spread (nominal spread). The bond's yield to maturity minus the yield of an interpolated government bond at the same maturity. Simple, quick, and slightly wrong: it compares two single-number yields and ignores the shape of the curve between now and maturity.
• I-spread. The same idea measured against the interest-rate swap curve rather than the government curve. Common where swaps are the natural funding benchmark.
• Z-spread (zero-volatility spread). The constant number of basis points you must add to every point on the benchmark zero-coupon curve so that the bond's discounted cash flows equal its market price. Curve-consistent, so it does not care whether the curve is steep, flat or humped.
• Option-adjusted spread (OAS). The Z-spread with the value of any embedded option removed. This is the measure that makes bonds comparable.
• Asset-swap spread (ASW). What you earn over a floating benchmark once the fixed coupon is swapped to floating — the number a funded, hedged buyer often cares about.

Why OAS exists

Many corporate bonds — most high-yield bonds — are callable: the issuer may redeem them early. That call is an option the issuer holds and the investor sold. You get paid for selling it, and that payment sits inside the quoted spread, pretending to be credit compensation.

An illustrative callable bond:

• Z-spread: 205bp
• Value of the embedded call, expressed in spread terms: 35bp
• OAS = 205 − 35 = 170bp

Now compare it to a plain non-callable bond from a similar issuer with a Z-spread of 195bp (its OAS is also 195bp, since there is no option to strip).

• On Z-spread: the callable looks wider — 205 vs 195.
• On OAS: the callable is tighter — 170 vs 195.

The ranking flips. Only one of these comparisons is measuring credit; the other is partly measuring an option. For putable bonds the adjustment runs the other way — the investor holds the option, so OAS exceeds the Z-spread.

Spread to worst

For a callable bond, quoting to maturity assumes it lives its full life. Practitioners often quote spread to worst: the spread computed to whichever call or maturity date produces the least favourable outcome for the holder. It is conservative by construction and a common convention in high-yield quoting.

The discipline

Three rules that prevent most errors:

1. Match the measure. OAS against OAS, Z against Z. Never compare a G-spread to an OAS.
2. Match the benchmark curve. Government-based and swap-based spreads differ by the swap spread itself, which is not a credit fact about your bond.
3. Match the maturity. Credit curves slope, so a 3-year and a 10-year from the same issuer should not quote the same number.

Get those three right and a spread comparison is meaningful. Get any one wrong and the number is arithmetic without content.

In the data

The same credit can carry two honest spreads. The table gives six governments' credit default swap spreads twice: once as the plain price of protection, and once measured over Switzerland, whose own spread is subtracted as a near-riskless benchmark.

The two columns differ only by the benchmark chosen, which is exactly why two desks can quote different spreads on one credit without either being wrong. Carry the benchmark alongside any spread you write down.

Try it now

Check what you are looking at before you compare:

1. In the table above, take one country, write down both spreads in basis points, and say which benchmark each is measured against. Then check that the gap between the two columns is the same for every country, and say what that constant is.
2. Now look for the maturity in the same table: each country has a spread, a rating and a date, and no maturity at all. The source describes these as ten-year spreads, but only in a note outside the table. A spread you cannot attach a maturity to from the row itself is not yet comparable with anything.
3. Write one sentence naming the measure, the benchmark and the maturity — e.g. "spread over the government curve, 5-year, no option adjustment." That sentence is what makes a spread quotable.