Hi guys,
I am trying to get a better understanding of how a buy-side credit analyst values a bond. My understanding is that you construct a spot-rate curve and make the present value of a bond's cash flows equal to its market value by solving for the z-spread or the OAS if the bond has an embedded option. I am assuming this is all done through some software package?
Once you have a z-spread or OAS do you compare it to other bonds of similar credit risk and maturity and look for relative value? In terms of credit analysis, do you simply use the ratings assigned by a ratings agency or do you conduct your own analysis and come up with your own rating?
Also, say a company has 2 bonds in issuance, a 3 yr note and a 20 year bond and you believe that rates will fall and that the longer duration bond will rise, do you make that call or is duration and curve positioning entirely up to the portfolio manager?
Thanks and I appreciate your help.
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