Assume the following for corporate bond A: spread duration = 5, credit spread = 100 basis points, and weight in the portfolio = 6%
What is bond A's duration times spread?
What will be an ideal response?
A measure that is used for determining the contribution of a bond sector to portfolio spread duration is one introduced by Barclays Research. This measure is referred to as duration times spread, or DTS. There are two elements whose product is used in computing DTS: spread duration and credit spread so that in equation form we have: DTS = spread duration + credit spread.
In our problem, corporate bond A has a spread duration of 5 and a credit spread of 100 basis points. Inserting our values into theabove DTS formula and noting that 100 basis points is 0.01 in decimal form, we have:
DTS = spread duration + credit spread= 5 × 0.010 = 0.0500or5.00%
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