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CFA Level I · CFA Level I Exam · Yield and Yield Spread Measures for Fixed-Rate Bonds

A 7-year fixed-rate bond has a yield to maturity of 5.20%. The 7-year swap rate in the same currency is 4.45%. The bond's I-spread is closest to:

The I-spread is the bond's yield minus the interpolated swap rate at the same maturity. Here 5.20% less 4.45% equals 0.75%. It uses the swap curve rather than the government curve as the benchmark, so it reflects spread over interbank funding rates.

  1. A0.75%Correct
  2. B0.95%
  3. C9.65%

Explanation

The I-spread is the bond yield minus the swap rate of the same maturity: 5.20% - 4.45% = 0.75%. The 9.65% option adds the two rates instead of subtracting. The 0.95% option is a plausible-looking figure from a miscalculated difference.

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