what is an OAS spread for bond

Option Adjusted spread (OAS) is usually calculated for bonds with embedded options (call or put)
OAS is a constant spread over discounting curve you have to apply to back up market price of the bond
this spread is adjusted to embedded options

company A senior bond with embedded call feature is worth today 101$
if OAS spread is 5% it means that if you want to calculate senior bond of the same company A , which does not have this optionality you would have to shift the discounting curve up 5% (constant spread) to get market price of this simple bond

OAS spread could be used as CDS spread on this company A , if no other CDS quotes are available

Posted in OTC derivatives valuation