Benchmarking Spread Products to the LIBOR Curve

Kamel Bazizi, Ph.D.

In this paper we present an analysis of historical spreads of mortgage, corporate and agency securities, and swap spreads, during the 1991-2001 time period. Year-by-year statistical measures, as well as averages over the entire decade, are summarized for each spread product. The statistical measures include averages, basis point standard deviations of spreads, and correlations of spreads among certain selected products. We explain why spreads have been much higher, more volatile and more correlated since mid-1998. We present historical data for option-adjusted spreads (OAS) as tracked by the BondEdge system, which includes corporate and mortgage sectors, and agency debentures. An appendix discusses how the LIBOR curve is constructed in the BondEdge system.