• The option-adjusted spread (OAS) measures the difference in yield between a bond with an embedded option, such as an MBS or callable, and the yield on a Treasury bond.

  • Embedded options are provisions included in some fixed income securities that allow the investor or issuer to take certain actions, such as withdrawing an issue.
  • Using historical data and volatility modeling, OAS considers how an embedded option on a bond can change future cash flows and therefore the overall value of a bond.