Definition
Spread duration measures price sensitivity to credit spread changes specifically, unlike modified duration which measures sensitivity to overall yield changes. For credit-sensitive bonds (corporates, high yield), spread duration determines how much the bond's price moves when market credit spreads widen or tighten.
functions Formula
ΔPrice ≈ −Spread Duration × ΔSpread
lightbulb Example
A corporate bond has spread duration of 5 years. If credit spreads widen by 50bps, the bond loses approximately 5 × 0.50% = 2.5% in value.
verified_user Key Points
- Measures credit spread sensitivity specifically
- Critical for corporate and high-yield bonds
- Spread widening causes losses; tightening causes gains
- Separate from interest rate duration