I wanted to understand how I can use Z-spreads in the context of gov bond RV.
I understand how to compute Z-spreads although I am having some trouble interpreting the meaning. I am solving for the amount I need to shift the ZC swap curve in order to reprice the particular bond in question correctly (as given by the market price).
Say I have one bond (A) with a z-spread of +50bps and another similar maturity bond (B) with a spread of +20bps. Does this imply the swap market is actually saying: on the raw swap curve (i.e. unbumped) the pv of A is very high, relative to the market price therefore to reduce it to the market price the discount rates must be increased? In this sense, this bond is actually richer than B which only has a spread of +20bps?