Duration times spread
Spread duration multiplied by the credit spread, a measure of a bond's credit risk. Spreads tend to move in proportion to their level, so it captures spread risk better than spread duration alone.
Where you will meet it
Duration times spread appears in 5 learning outcomes on the CFA syllabus. A few of them:
- Explain the risks a manager must weigh when running a portfolio whose returns hinge on credit spreads
“Lower-rated bonds show larger spread changes in basis points, so exposure is often measured with duration times spread (DTS).”
- Explain issuer-level (bottom-up) ways of running a credit strategy
“A useful yardstick is spread per unit of risk: for investment grade, spread duration and duration times spread let bonds be compared, and a bond whose spread is wide for its rating and fundamentals is a candidate.”
- Explain credit strategies that start from macro and sector views (top-down)
“Overall exposure can be measured with spread duration, or better, when comparing rating tiers, with duration times spread, which captures the larger spread moves of wider-spread bonds.”
- Explain the positioning choices a manager can use to act on a particular view about credit spreads
“A view on the overall spread level is expressed by raising or cutting spread duration or duration times spread relative to the benchmark, with bonds, CDS indexes or ETFs.”
See also
Credit spread · Spread duration
Practise it
Practise duration times spread until it is automatic: questions that explain every wrong option.
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