Spread duration

CFA Level III
#1

Can someone please explain this concept to me? Or where in the book I can find some explainations about this subject?

I am just reading a summary of my friend’s. Her note writes: spread duration = elasticity to spread change (OAS). Non- treasury bond: spread duration = effective duration. Treasury bond: spread duration = 0.

So effective duration = portfolio duration = spread duration for a non-treasury bond portfolio?

sad feeling dumb on a friday afternoon

#2

Now I forget about OAS…>_

#3

Suppose that the YTM on your risky bond increases by 50bp. It may do so because:

  • The YTM on Treasuries increased 50 bp, and the spread above the Treasury curve remained constant
  • The YTM on Treasuries remained constant, but the spread above the Treasury curve increased 50 bp

Either way, the price of your risky bond drops the same amount.

Thus, the spread duration (percent price change for a 100bp change in the spread above the Treasury curve) is the same as the effective duration (percent price change for a 100bp change in the Treasury rates).

#4

so for a treasury bond, spread duration = effective duration = 0?

#5

For a Treasury, spread duration is usually shown as zero, but it can be anything because _ the spread is always zero _.

The effective duration of Treasuries is most certainly not zero.