key rate duration

CFA Level II Fixed Income
#1

When we talk about key rate duration, does the RATE refer to YTM or spot rate?

Say for example, the 5 year key rate duration for a 10 year bond is 6. Bond price will fall by 6% due to:

  1. 1% increase in 5 year benchmark YTM

or

  1. 1% increase in 5 year benchmark spot rate?
#2

YTM.

#3

Thank you!

#4

You’re quite welcome.

#5

The rate of key rate duration is par yield or bond yield?

#6

I’m not sure I understand your question.

Key rate duration is computed by changing a single par rate, leaving all other par rates unchanged.

It has some unusual implications for the spot curve; therefore, it has some unusual implications for bond prices.

I wrote an article on key rate duration that covers it quite clearly: http://financialexamhelp123.com/key-rate-duration/. This is one of the free sample articles on my website.

#7

thank you!

#8

My pleasure.