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.
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