Fixed-income securities Archives

Visualizing investment risk: Prepayment (borrower actions) vs Default (debtor actions). Callable bonds face a balance of both risks on the seesaw.

Understanding Prepayment Risk: A Hidden Threat in Fixed-Income Securities

May 17, 2025 FinanceFacts101 Business Finance

Introduction to Prepayment Risk: What Is It and How Does It Impact Investors? Prepayment risk, a critical concept in the realm of fixed-income securities, refers to the threat posed by an investor’s principal being repaid early. This phenomenon primarily affects callable bonds and mortgage-backed securities (MBS). Callable bonds grant issuers

Understanding Option-Adjusted Spread (OAS): Valuing Embedded Options and Fixed-Income Securities

April 25, 2025 FinanceFacts101 Finance Policy

What is the Option-Adjusted Spread (OAS)? Understanding the Concept and Significance of Option-Adjusted Spread (OAS) The option-adjusted spread (OAS) is an essential measure used in fixed income securities analysis, particularly when evaluating bonds with embedded options. OAS offers a more precise way to determine a security’s value by adjusting the