spread duration (SD), Duration

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lzhao

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For floating-rate coupon, how does SD compare with Duration?
Generally, how does duration for fixed-rate bonds compare with floating-rate bonds of same other characteristics?
 
duration for floating rate bonds is always less than duration for fixed rate bonds. Reason is: price of a bond is created by the cashflows created by the bond, for fixed rate you lock in a yield and you can only invest at new rate the cupon. that is not true for floating rate bonds given the fact that the reset of the rate is equivalent to reinvesting the whole amt at the newer rate
 
lzhao.
Good to see that you start reading earlier.
Not trying to put you down in public, but write this with the best intention to help you in mind: you really need to go back and strengthen your basic concepts in level II or (even level I) before starting reading level III again.
Your question (consistently with your previous postings, if I remember them right) shows your grasp on the basics is shaky at best. Without a better understanding of the basics, it is difficult to succeed in level III, I believe.
There is still time. Good luck.
 
florinpop is talking about asset (interest rate) duration. spread duration for floating rate bonds can far exceed the asset duration.
 
doubledip,
why do u say SD far exceeds int rate duration for floaters?
thanks
 
For any spread sector of bonds, floating rates included, SD can either be higher or lower than actual duration. That’s the point of SD.
 
thanks Sweep! by the way …. dying to know the origins of your screen name. I’m sure there’s a story there
 
Sweep the Leg Wrote:
——————————————————-
> For any spread sector of bonds, floating rates
> included, SD can either be higher or lower than
> actual duration.
Not sure I agree with that statement.
- For T bonds –> no risk –> no spread, the spread duration is 0.
- For a risky bond (i.e., non Treasury bond), spread duration = effective duration.
Thus for a spread bond sector, the average spread duration = average effective duration of the sector.
For a portfolio with a mix of T bonds and risky bonds, its spread duration would be a weighted average of all sectors. Since spread duration of T bond sector =0, the spread duration of a portfolio would always be LOWER than its effective duration, not higher.
If the portfolio is composed solely of non T bonds, its spread duration = its spread duration (as mentioned before).
For a portfolio, spread duration is NEVER higher than effective duration.
 
elcfa Wrote:
——————————————————-
> Sweep the Leg Wrote:
> ————————————————–
> —–
> > For any spread sector of bonds, floating rates
> > included, SD can either be higher or lower than
> > actual duration.
>
> Not sure I agree with that statement.
>
> - For T bonds –> no risk –> no spread, the
> spread duration is 0.
> - For a risky bond (i.e., non Treasury bond),
> spread duration = effective duration.
> Thus for a spread bond sector, the average spread
> duration = average effective duration of the
> sector.
>
> For a portfolio with a mix of T bonds and risky
> bonds, its spread duration would be a weighted
> average of all sectors. Since spread duration of T
> bond sector =0, the spread duration of a portfolio
> would always be LOWER than its effective duration,
> not higher.
>
> If the portfolio is composed solely of non T
> bonds, its spread duration = its spread duration
> (as mentioned before).
>
> For a portfolio, spread duration is NEVER higher
> than effective duration.
You are exactly correct. As a general rule, my posts outside of business hours should be completely ignored as I’m almost certainly drunk, just like last night.
 
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