10 — Credit Spreads and Spread Duration¶

Free learning pack¶

1. PIMCO Fixed Income Education Center
   https://www.pimco.com/ca/en/resources/education-center/fixed-income
2. PIMCO Understanding Duration
   https://www.pimco.com/us/en/resources/education/understanding-duration
3. MIT Finance Theory I fixed-income materials
   https://ocw.mit.edu/courses/15-401-finance-theory-i-fall-2008/
4. resources/fixed_income.md

Vocabulary¶

credit spread, OAS, Z-spread, spread duration, widening, tightening, IG, HY, default, recovery

Approximation¶

dP/P ≈ -SpreadDuration*dSpread

In [ ]:

# MANUAL FIRST
market_value = 10_000_000
spread_duration = 4.2
spread_change_bp = 50

# Convert bp and estimate P&L.

# MANUAL FIRST market_value = 10_000_000 spread_duration = 4.2 spread_change_bp = 50 # Convert bp and estimate P&L.

Scenario¶

Calculate:

• IG +50 bp
• HY +150 bp

Then answer: Can a portfolio be short rates duration and long spread duration?

Compare with src/pm/fixed_income/credit.py.