The link below shows the BofA Merrill Lynch US High Yield Option-Adjusted Spread. I am trying to have a better understanding of high-yield bonds before I invest in them.


My understanding is that spread = yield - risk-free yield. I cannot find the information which spot Treasury bond is used to represent the risk-free yield. Is it 2-year or 10-year Treasury bill?

  • HY bonds are usually traded in price not in yield/spread. – user695652 Jan 16 at 15:29

See Nick R's answer for the explanation of the concepts.

If you want to find out whether it's the 2 year, 3 year or 10 year spot on the treasury curve that is being used as the risk-free yield, you need to know the weighted average life (WAL) of the index.

One way to do this is to go to BofA ML's index website. Once you (created an account and) logged in, in the lower right is the "Index Snapshot". Put in the index ticker for the index (which is "H0A0") and you shall see among other things the WAL of the index, which is currently at 6.3. So it's the 6.3 year treasury yield (interpolated between 5y and 7y) that is being used as the risk-free yield in the OAS calculation.


The spot yield curve is not a chart of a single treasury bond yield - e.g., 2year of 10 year. The spot yield curve is a graph of zero-coupon bond yields plotted against time. For example, to obtain today's spot yield curve, setting time on the x-axis and yield on the y-axis, you would plot all existing zero-coupon treasury bond yields against time. You would then interpolate between these plot points to obtain a continuous curve - the spot yield curve.


The notes included on the BofA page you have linked describe the BofA Merrill Lynch HY index as a market cap weighted index with a corresponding weighted average time to maturity. Although not explicitly stated in the notes, it would be natural to choose the weighted average time to maturity as the date to compare with the yield on the spot yield curve in order to obtain the spread being charted on the page you have linked.

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