Spreads used for fixed-rate mortgages:

I: Conventional yield spread to Interpolated Yield Curve

J: Conventional yield spread to Interpolated Nominal Yield Curve

A: Conventional yield spread to nominal (Actual) Treasury benchmarks

U: Conventional yield spread to specific (Unique) benchmark

Z: Cashflow spread to implied spot curve

S: Cashflow spread to actual US STRIP Curve

D: Conventional yield spread to Duration-matched US STRIP benchmark

N: Conventional yield spread to swap curve

E: Cashflow spread to Eurodollar spot curve (IMM)

The primary distinction of these methods is whether spread is with respect to yield or cashflow. A yield spread compares on yield to another, with both computed in a conventional manner. However, a cashflow spread discounts each component cashflow at its own spot rate. The most popular spread choices are:

US Treasury, Coupon curve Yield Spread: I

US Treasury, Spot rates Cashflow Spread: Z

US Swaps, Coupon curve Yield Spread: N

US Swaps, Spot rates Cashflow Spread: E


(Most) Spread-Type Features:

Spread Chart

A-spread: Conventional yield spread to a specific on-the-run Treasury benchmark, such as 5-year or 10-year. Any benchmark can be specified, including a hypothetical maturity - in which case the associated yield is interpolated based upon nominal benchmark maturities.

J-spread: A variation of A-spread wherein a hypothetical (interpolated) maturity point is automatically set to the mortgage's WAL.

I-spread: Similar to J-spread, except that it anchors off the literal maturity of the benchmarks - rather than their nominal values.

U-spread: Permits spreading to an arbitrary bond, including "off-the-runs".

D-spread: Recognizes the analytical superiority of duration to simple WAL, which ignores coupons and present value considerations. D-spread compares the conventional yield of the mortgage to that of a comparable Treausury STRIP, where the STRIP has the same Macauley duration (i.e. maturity) as the Macauley duration calculated mortgage. Also known as a "poor man's Z-spread."

Z-spread: The first measure to consider the shape of the yield curve. Each component of the mortgage cashflow is discounted at its own spot rate plus the Z-spread, with the spot curve having been generated by stripping the on-the-run benchmark bonds.

S-spread: Exactly the same as the Z-spread, except that the spot curve is determined by using the actual STRIP bonds with their market prices. While theoretically superior to Z-spread, problematic pricing for the less-liquid STRIP bonds is a mitigating factor.

N-spread: Analogous to I-spread, except that the reference curve is the US dollar Swap Rate curve "I52".

E-spread: Analogous to Z-spread, except that the reference curve in that it is a cashflow spread, not a conventional yield spread. The reference curve is the spot Eurodollar rates as determined by future contracts. Caluctaed on a semi-annual 30/360 daycount basis with paydates adjusted to actual business days where applicable. (All other spreads are 30/360 basis with nominal paydates.)

OAS: An averaging statistic for multiple cashflows, whereas the above spread modes correspond to a single cashflow.