Spread Duration
Price sensitivity to credit spread changes, holding risk-free rates constant.
Spread duration (credit duration) measures how much a bond's price changes when its credit spread widens or tightens, holding the risk-free curve constant. This isolates credit risk from rate risk. For example, a corporate bond with spread duration of 6 loses ~6% if its spread widens 100bp over Treasuries. Difference from modified duration: Modified duration measures total yield sensitivity (rates + spread). Spread duration isolates spread. Calculation: Similar to modified duration, but shock spread not yield. Use: Credit portfolio management, measuring pure credit exposure, hedging credit risk with CDS. For high-yield bonds, spread risk often dominates rate risk.
Formula