Breakeven Spread Widening
The spread widening that exactly offsets carry — protection against credit deterioration.
Breakeven spread widening answers: 'How much can the credit spread widen before I lose money?' It equals the running yield divided by spread duration, in basis points. Similar to breakeven rate but isolates credit spread risk rather than interest rate risk. For example, a bond with 3% running yield and spread duration 5 breaks even if spreads widen 60bp (3% / 5 × 100). If the bond belongs to an issuer you think could deteriorate 50bp, you have only 10bp of cushion. Wider breakeven = more protection against credit widening. Key for credit investors: A bond with 500bp carry over Treasuries and spread duration 4 breaks even on 125bp of spread widening — substantial cushion for high-yield uncertainty.
Spread Duration
Price sensitivity to credit spread changes, holding risk-free rates constant.
Breakeven Rate (Rate Breakeven)
The yield rise that exactly offsets carry income — expressed in basis points.
Carry
The income earned from holding a bond, mainly from coupon accrual.
Current Yield
Annual coupon income divided by the bond's clean price.
Running Yield
Annual coupon income divided by the bond's dirty price (clean price plus accrued interest).
Yield to Maturity (YTM)
The annualized return if you hold the bond to maturity, assuming all coupons are reinvested at the same rate.