Spread Duration of Non-Treasury Bonds

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PJStyles

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Is the spread duration of a Non-Treasury Bond always the same as its effective duration? P.53 of Schweser Volume 1 - Practice Exam Question 14.4. They answer it with the assumption and statement that for all non-treasury bonds, the effective duration and spread duration is the same number.
 
The spread duration is zero for treasury bonds. Treasuries are the benchmarks against which spreads are measured. Hence they have no spread duration.
 
I get that part… I’m referring to the spread duration of non-treasury bonds.
 
In many senses spread duration is like normal duration. Simply if interest rates rise or fall a small amount Duration is roughly correct. Similarly if spreads move in or out a small amount, then the discount rate moves down or up.
 
For the purposes of this test, Yes you can assume that Spread Duration = Effective Duration for Non-treasuries. In the real world this doesnt necessarily hold as we heatly debated this a month or so ago :)
 
yep, its in CFAI errata
in real world, this may not hold true because of the optionality present in some non-treeasuries, but for the test purposes assume they are equal
 
volkovv i think even for the purpose of the test if it is callable bonds we cant assume that
 
^CSK I would love to agree with you, but for some reason I thought that the text assumes otherwise…did they finally fix it?
 
^ I agree
here is what CFAI says after the issued their errata
“For portfolio of non-Treasury securities, spread duration equals portfolio duration. However, because the spread duration of Treasury securities is zero, a portfolio that includes both Treasury and no-Treasury securities will have a spread duration that is different from the portfolio duration”
So in a case when portfolio has only non-Treasuries, they are either assuming that these non-Treasuries are not callable or that is even in presence of callable non-Treasuries that statement will hold (which would be wrong)
So, as I said for the test I am taking it as gospel. But I agree with you, bigwilly and others, that in reallity when you have optionality that staement doesn’t hold.
 
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