How much a credit bond's price moves for a one percentage point change in its credit spread, holding Treasury yields constant.
Interest rate duration and spread duration are usually similar in size for a fixed-coupon bond, but they are driven by different things. Rate duration reacts to the fomc and inflation; spread duration reacts to default fears, earnings and risk appetite.
Separating them matters because the two often move in opposite directions. In a growth scare, Treasury yields fall while credit spreads widen, so a corporate bond can be flat while its Treasury hedge rallies.
Example: a corporate bond with spread duration 6.5 sees its credit-spread-bonds widen from 120 bp to 175 bp. The price falls roughly 6.5 x 0.55 = 3.6% relative to Treasuries, even if the Treasury yield never moved.
Original diagrams for the ideas on this page. Illustrative, not real market data.
The bid-ask spread. Buy orders sit below, sell orders above, and the gap between the best bid (50.01) and best ask (50.04) is the spread you pay to cross. Bar length shows the size resting at each price.
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