Absolute Yield

[AJF]

When calculating the AB yield how do you know which bond will be the benchmark? Will it always be the shortest Term Treasury security?

Thanks!

 

[jamespucyk]

It is the yield between two bonds. That is the yield spread. It can be any two bonds whether you are comparing the average yield of a 10 year treasury notes to the average yield of a 10 year corporate BBB bond or a 3 year corporate bond yield to 30 year corporate bond yield. Yield spread is a concept that can be applied to any two bonds for meaningful comparison.

Just remember that Relative Yield is always superior.

 

[AJF]

Thanks

 

[jamespucyk]

NP, and I forgot to add relative yield and Yield Ratio are analogous if yield ratio is stated as percentage (Ia/Ib) - 1