The curriculum states “ The ASW is an estimate of the spread over MRR versus the bond’s original coupon rate to maturity.”
Can someone explain this? ASW = Coupon - Fixed Swap Rate, so where does the MRR come into picture here?
We calcualte a premium (or discount) over the MRR of a swap based on the couppn payments of a bind.
So if you own the bond and receive fixed coupons.
You go to swap dealer and offer to pay fixed on the amounts equal to the coupon payments your are recieving.
They quote you a variable rate MRR +/- an amount.
Assuming the bond you own is risky it is going to be a premium over MRR