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I am checking a few bonds on the YAS page on Bloomberg and I can see that G is higher than Z spread (this applies to bonds with optionality and bullet, too). As Z is stripped from reinvestment risk, shouldnt G be higher provided that equals credit risk + reinvestment risk? Thank you, much appreciated if anyone can clarify this for me.

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Tough to answer specifically because I don't know what bonds you're looking at, but my guess is it has less to do with the spread-building blocks and more to do with the base curve. G spread is based off the interpolated government bond curve, and Z spread is off the Swap curve, if you mouse over on YAS it will show you the base curve.

Since right now the swap curve is higher than the Treasury curve out to about 5/6 years, I imagine you're looking at bond inside of 5 years to maturity. That's going to drive the Z spread lower than the G.

If you're looking out past 5/6 years the relationship should flip back to what you describe with a G below the Z spread. Look at something like a Verizon 30 year and you'll see that play out.

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    $\begingroup$ Looking at VZ 5.5s of 03/16/2047, the G-spread is 205.8, the Z-spread 255.8. G below Z. QED. $\endgroup$ – noob2 May 23 '17 at 18:40
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Us dollar swap curve is lower than the actives curve for maturities after 20y currently. Hence your g spread would be bigger than your z in broad terms. The current spread between them for the 47s you're looking for is close to 20bps. hence the diff is spot on when i look at yas, i get 163g-spread and 182z.

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Zero curve is always stepper than regular curve. As long as it is a positive curve. And that is the reason the Z spread is higher than the G spread. In Zero curve or spread only the last coupon is capitalize in the high interest rate. The first coupons in the cashflow capitalize with lower interest rate, so the Z spread / Zero curve is higher

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