Definition
Spread duration measures how much a bond's price changes when its credit spread changes, independent of Treasury rate movements. It's particularly important for corporate and high-yield bonds where credit spread movements can significantly impact returns separate from overall interest rate changes.
Formula
Price Change from Spread = -Spread Duration × Spread Change
Example
A corporate bond with 5-year spread duration loses about 5% if its credit spread widens by 100 basis points.
FAQ
What is Spread Duration?
A measure of a bond's price sensitivity to changes in credit spread.
How do you calculate Spread Duration?
A common formula for Spread Duration is: Price Change from Spread = -Spread Duration × Spread Change
Why is Spread Duration important?
Spread Duration helps investors evaluate fixed income and make more informed decisions.