Return Impact !!! Bond Convexity Spread (-Sign)
The formula says:
Return impact = modified duration * change in spread.
In a schweser problem, the spread narrows and it’s shown as a negative sign??? why is this the case?
If the spread had widen, would this be a +positive sign for the spread change?
My reasoning: if the spread narrows, the return impact will be an increase in bond price due to a lower denominator. |