Spread duration meaning

In practice, spread duration describes a bond’s price sensitivity to movements in its credit spread (as opposed to interest rates). It is typically expressed as the percentage change in price for a 100 basis point change in the bond’s option‑adjusted spread (OAS). Holding the risk‑free yield curve constant, a higher spread duration indicates greater exposure to price falls if spreads widen and price gains if spreads tighten. It is distinct from (interest‑rate) duration. This is a market and analytical term rather than one defined in legislation or case law, and usage is broadly consistent across England & Wales, Scotland, Northern Ireland and Ireland. Legal relevance includes: drafting and reviewing prospectus and listing risk factors for bond and securitisation offerings; setting or assessing portfolio guidelines and covenants in investment management agreements (for example, limits on spread duration); structuring and documenting hedging strategies (including credit derivatives) that target spread risk; and expert evidence or valuation in disputes concerning losses from credit spread moves. Where bonds embed options (for example, callable/putable or structured credit), spread duration is usually calculated with OAS to reflect option effects.