Economics Bonds Questions
Bond yield spread duration is a measure that quantifies the sensitivity of a bond's price to changes in the yield spread between the bond and a benchmark bond, typically a government bond. It helps investors understand the potential impact of changes in credit risk on the bond's price.
The bond yield spread duration is calculated by multiplying the bond's modified duration by the bond's spread duration. Modified duration measures the bond's price sensitivity to changes in its yield, while spread duration measures the bond's price sensitivity to changes in the yield spread.
A higher bond yield spread duration indicates that the bond's price is more sensitive to changes in the yield spread, implying higher credit risk. Conversely, a lower bond yield spread duration suggests lower sensitivity to changes in the yield spread, indicating lower credit risk.
Investors use bond yield spread duration to assess the risk and potential return of a bond investment. It helps them evaluate the impact of changes in credit spreads on the bond's price and make informed investment decisions.