Options-Adjusted Spread (OAS)¶
The options-adjusted spread is the yield spread over a risk-free benchmark that remains after stripping out the value of embedded options in a bond. It measures compensation for credit risk, liquidity risk, and other non-option factors. OAS is the standard metric for comparing callable, putable, or convertible bonds against plain-vanilla bonds on equal footing.
HOW IT WORKS¶
OAS is calculated by building an interest rate tree or running a Monte Carlo simulation across possible future rate paths. For each path, the bond is priced with its embedded option exercised where applicable. A constant spread is then added to the risk-free rate on every path until the average discounted cash flow matches the bond's market price — that spread is the OAS. Because the option value is backed out of the calculation, a callable bond's OAS is higher than its nominal yield spread: the issuer holds the right to refinance, and the OAS reflects what the investor earns after accounting for that cost. Higher volatility assumptions increase the modeled option value and reduce the resulting OAS, so two analysts using different vol inputs will produce different OAS figures for the same bond.
IN TAPEBOARD¶
In the Tapeboard terminal, OAS appears on the bond detail panel alongside nominal spread and Z-spread. Traders can sort and filter the corporate bond screener by OAS to surface relative-value opportunities across callable and non-callable issues without manually adjusting for option features. When a bond's OAS widens in the live feed, Tapeboard flags the move as a potential credit-deterioration signal; narrowing OAS is highlighted as a spread-compression opportunity. The OAS column is available across corporate, mortgage-backed, and asset-backed security views, allowing cross-sector comparisons within a single screen.