I’ll give it a shot. I haven’t the CFA Institute books (yet), so I’ll create an example.
Suppose that a GBP investor owns a JPY-denominated bond. Compared to a comparable GBP-denominated bond, the JPY bond pays an extra 100 bp of yield, with a spread duration of 5.3 years. Over the next three months, how much can the spread widen before the JPY bond loses its advantage over the GBP bond?
If you recall the formula for (approximate) percentage price change from Level I, you’ll have this thing nailed:
%ΔP = -MDur × Δyield
The JPY bond offers an additional 25 bp of yield over 3 months, so, to lose its advantage, its price will have to drop by 25 bp compared to the GBP bond. Because we’re looking at relative prices (JPY bond vs. GBP bond) instead of absolute prices, we alter the Level I formula slightly:
Relative %ΔP = -SpreadDur × Δyield
Thus, we need to solve:
-25 bp = -5.3 × Δyield
Δyield = -25 bp ÷ (-5.3)
= 4.7 bp
Thus, if the spread on the JPY bond increases by 5 bp, it will lose its yield advantage over the GBP bond.
Notice that this formula is taking a total-return approach: the yield advantage (which may come from additional coupon or price appreciation or both) is being annihilated exclusively by a (relative) price change.