Z-spread

Definition

Zero-volatility spread. A tool used in the analysis of an asset swap that uses the zero-coupon yield curve to calculate the spread. The Z-spread is the number of basis points that would have to be added to the spot yield curve so that the bond's discounted cash flows equal the bond's present value. Each cash flow is discounted using its maturity and the spot rate for that maturity term, so each cash flow has its own zero-coupon rate. Analysts will typically look at both the Z-spread and the asset-swap spread to see if there are discrepancies in a bond's price.
For short-term debt and high-rated debt there tends to be little difference between the two spreads. If there is a large difference between the two spreads then the market is not pricing the bonds accurately. also called static spread.

Use Z-spread in a sentence

You should try and come up with a z-spread that will let you know if there are any new ways you should proceed.

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The z-spread was a good financial tool to use and it worked great for us and did exactly what it was supposed to do.

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They calculated the Z-Spread to determine the number of basis points they would need to demand so that it made financial sense to do the bond.

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