What is Zero-Volatility Spread – Z-spread?
The constant spread that will make the price of a security equal to the present value of its cash flows when added to the yield at each point on the spot rate Treasury curve where a cash flow is received . In other words, each cash flow is discounted at the appropriate Treasury spot rate plus the Z-spread.
The Z-spread is also known as a “”static spread”". Read more for examples and further explanation including related video clips and also comments
Example explains Zero-Volatility Spread – Z-spread
A Z-spread calculation is different than a nominal spread calculation. A nominal spread calculation uses one point on the Treasury yield curve (not the spot rate Treasury yield curve) to determine the spread at a single point that will equal the present value of the security’s cash flows to its price.