Hi. Can someone explain the difference between a benchmark spread and G spread? both spreads are measured from an on the run treasury. G spread can be an interpolation, while benchmark spread is not. one of the explanations of the G spread at CFI is the “G spread is the spread over an actual or interpolated government bond.” benchmark spread is also the spread over an actual government bond, so I can’t grasp the difference.
My thoughts:
Benchmark Spread (simple spread definition right?) - spread of a bond over the on-the-run gov. benchmark
G Spread - this is used when the maturity of a bond does not match a current on-the-run government bond. E.g. you have a bond with 4 years to maturity. There is not a 4 year US Treasury, so you interpolate this by using the UST on-the-run 3 year and 5 year yields to come up with a price for your 4 year bond.
thank you. makes sense.