Spread durations for non US treasuries

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Bopha99

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Why are the spread durations for non US treasuries the same as their effective durations?
The question in the book says if the OAS for all bond sectors changes 60 bps while US treasury yields remain unchanged, what is the approximate % change in the portfolio?
The answer goes on to say that the calculation and change from a uniform widening of 60 bps in all spreads is the same as if the yield curve had shifted with no change in the spreads.
 
Exactly because you’re calculating the sensitivity of the spread. Since treasuries remained the same then the spread vs the movement of interest rates remain constant.
Eg two posibilities
bond 10% treasury 6% then spread is 4% and you calculate the change in price under the scenario of 60bps since the spread remain constant it is equal to a parallel shift of 60 bps
in the other case if tsy move -50 bps then the effective movement (using 60 bps of movement of the spread) is 10 bps which is diferente than the previous calculation when you calculate the change in price.
 
If a corporate bond’s YTM increases, the bond doesn’t know whether it increased because Treasury rates increased, or its spread over Treasury rates increased.
 
Ah I see. So essentially a change in the OAS of all bond sectors by the same amount is the same thing as if the yield curve shifted by the same amount? Makes sense
 
I kinda have the same question.
How is the spread duration different from the effective duration? Are they calculated the same?
 
The difference between spread duration and effective duration is tha in spread duration instead of dividing by ΔYTM you’re dividing by Δspread. However, when Treasury rates are held constant, Δspread = ΔYTM, so the calculation gives the same value.
 
S2000magician wrote:
The difference between spread duration and effective duration is tha in spread duration instead of dividing by ΔYTM you’re dividing by Δspread. However, when Treasury rates are held constant, Δspread = ΔYTM, so the calculation gives the same value.
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That sounds a little complicated. What do we need to know as a concept (or formula) for the exam?
 
So for a non-treasury bonds, the duration = spread duration. And the contribution of spread duration is simply the spread duration of the asset class/bond multiplied by its weight, correct?
 
MrSmart wrote:So for a non-treasury bonds, the effective duration = spread duration.
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FTFY
MrSmart wrote:And the contribution of spread duration is simply the spread duration of the asset class/bond multiplied by its weight, correct?
Click to expand...
Yup.
And the spread duration of Treasuries is assumed to be zero.
 
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