I don't think this is an overly difficult part of the curriculum, I just can't seem to get my head around it. What is spread duration exactly? I know that a portfolio of treasuries has zero spread duration, a corporate portfolio has a spread duration equal to the effective duration of the portfolio, and a portfolio with both treasuries and corporates will have a spread duration of less than the effective duration.
Is literally all I need to know that corporate bonds have a spread duration= to the effective duration? And that if there is a portfolio with both corporates and treasuries, I would just go about calculating portfolio duration the same way as before, except using a zero value for the weight of the portfolio that is made up of treasuries?
Just seems an odd notion to me I guess...
Thanks作者: canadiananalyst 时间: 2011-7-11 19:52
All I know is spread duration is the change in spread over the change in rates and is used as a measure of credit risk. But, spreads can change even without changes in interest rates due to market perception of a particular sector/company.
NO EXCUSES作者: Windjammer 时间: 2011-7-11 19:52
Yeah, I suppose it was just a complicated way of saying that corporate bond duration is a function of more than just interest rates and time horizon. I'll wing it I guess.
Thanks作者: Colum 时间: 2011-7-11 19:52
This really tripped me up on the CFAI 2011 Mock (spoiler alert)
Question 33, regarding tracking error: I don't understand- why is there more tracking error from the different contributions of spread duration? Corporates have a different spread duration in the portfolio from the index. But Treasuries have a larger difference in the actual duration. Why isn't this difference in duration more important than the difference in spread duration? Thanks for any illumination on this!作者: Analti_Calte 时间: 2011-7-11 19:52
That's worth another point then. Hello 85%.作者: skycfa 时间: 2011-7-11 19:52
spread duration is just duration for fixed rates. this is a measure used in my experience with floating rate debt.作者: bboo 时间: 2011-7-11 19:52
i shouldve pointed out the assumption of credit risk, my fault and im sorry if i confused anyone.作者: lcai 时间: 2011-7-11 19:52
