ICE BofA US High Yield Index Option-Adjusted Spread

What are High Yield Index Option-Adjusted Spreads?

The estimated spread between resources in a specific credit and current Treasury curves are called ICE BofA Option-Adjusted Spreads (OAS). The bonds will be changed by capitalization to create OAS indices. For example, the ICE BofA High Yield Master II OAS is based on a sub-investment-grade bond index. This is the best way to contrast bonds.

A high Yield Spread chart

High yield OAS chart is presented below:

 ICE BofA US High Yield Index Option-Adjusted Spread

This chart is used by Bank of America Merrill Lynch’s high yield option-adjusted spread (Merrill lynch high yield credit spreads). We downloaded data for the last 5 years.

Sovereign and securitized debts are all covered in ICE BofA Option-Adjusted Spreads. ICE BofA Option-Adjusted Spreads considers existing data as the variable of payment rates. The factors considered are complex since the future model alters in the interest and so on.

The OAS Index value indicates the US dollar’s success based on investment-grade certified corporate debt officially released in the US economy. Stocks should have an impressive net worth. Each asset should have a residual expiration of at least one year, minimal money of $100 million. It will help in making a report. OAS uses different possibilities to calculate bonds.

The Index consists of debt released jointly in the government bond, 144a assets, and pay-in-kind equities, like toggle notes. Assets are eligible if they have been held for at minimum one year since the term date. Fixed floating bonds are qualified if they are computable during the fixed price term and have been callable for at a minimum one year to the grant’s conversion. The Index excludes DRD-eligible.

High yield OAS Calculation Methodology

The capitalization weighting of underlying securities is based on their actual remaining balance. Accumulated interest is computed, and next-day payment is expected, excluding US structural instruments. For mortgages pass-through and complex products in the United States, accrued interests are calculated, presuming same-day payment. Cash outflows from debt money made in the month are kept in the index till the end, after which they are withdrawn.

While money is maintained in the Portfolio, it will not get investment profit. On the last day, the Indexes are readjusted using evidence collected. The Ranking includes issues that match the eligibility requirements. Items that do not fit the needs during the month continue in the index till next month’s ending rebalancing; after that moment, they are eliminated.

It will lead to weekend checks because of month-ending interest modifications when the last date of the month is there. The main problem is that it considers historical data and can lead to misinterpretation. It allows equation flow of cash at fixed rates and value fluctuations in the market. The currency flow is determined along with all factors.

ICE BofA US High Yield Index Option-Adjusted benefits

High yield OAS benefits are:

  • Buyers can decide if bonds with an embedded choice are worth investing in by isolating them from their characteristics.
  • When evaluating the yields of two bonds, OASs give an idea of an integrated option contract. Therefore, in modeling, it will use integrated models.
  • Because the computation is similar to the Z spread analysis, it is accurate. In addition, it recognizes the security’s revenues along every route, allowing for the inclusion of money flow in the assessment. However, it can be a bit complex.


Igor has been a trader since 2007. Currently, Igor works for several prop trading companies. He is an expert in financial niche, long-term trading, and weekly technical levels. The primary field of Igor's research is the application of machine learning in algorithmic trading. Education: Computer Engineering and Ph.D. in machine learning. Igor regularly publishes trading-related videos on the Fxigor Youtube channel. To contact Igor write on:

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