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Answer: G-spread, which denotes the yield spread in basis points over an actual or interpolated government bond, reflecting compensation for credit, liquidity, and other risks relative to the sovereign bond.
The **G-spread** is the correct answer because it measures the yield spread over an actual or interpolated government bond, accounting for additional risks such as credit and liquidity compared to the sovereign bond. The I-spread (Option A) refers to the spread over a swap rate, while the Z-spread (Option C) is a constant spread over the benchmark rate curve. This aligns with the learning objective to compare, calculate, and interpret yield and yield spread measures for fixed-rate bonds.
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The yield spread over an interpolated sovereign bond is best described as a(n):
A
I-spread, which represents the yield spread of a specific bond over the standard swap rate in the same currency and tenor.
B
G-spread, which denotes the yield spread in basis points over an actual or interpolated government bond, reflecting compensation for credit, liquidity, and other risks relative to the sovereign bond.
C
Z-spread, which is a constant yield spread over a government or interest rate swap curve, also known as the zero-volatility spread.
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