Credit Spread Duration

Credit Spread duration is similar to ordinary duration, but, instead of telling you how sensitive a bond’s price is to changes in the risk-free rate, credit spread duration tells you how sensitive a bond’s price is to changes in credit spreads. 

We can measure the credit spread duration of any instrument who’s price is a function of credit spreads, including credit default swaps.

Depending on the instrument, the credit spread duration and ordinary duration can be similar or very different:

  • Credit Default Swap and Floating Rate Bonds typically have credit spread duration, but very little ordinary duration;

  • Risk-Free Government Bonds should have no credit spread duration, but do have ordinary duration;

  • for Fixed-Rate Corporate Bonds the credit spread duration and ordinary duration are usually equal.

Credit spread 01 or CS01 is another popular measure of credit sensitivity.

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