The offiical definition of duration is the % change in price for a % change in interest rates.
Do we assume that OAS stays the same? In other words, the bond’s yield changes and the benchmark Treasury also changes such that the OAS remains constant?
That’s the official definition of modified or effective duration. Not, for example, Macaulay duration.
Not necessarily. We’re looking at the price change when _ this bond’s _ YTM changes. It doesn’t really matter whether a 100bp change in YTM on this bond is equivalent to a 100bp change in YTM on the benchmark Treasury; we’re changing this bond’s YTM, not the Treasury’s.
Thanks, but doesn’t a bond have Treasury (interest rate risk) so the Yield of the bond depends on the Treasury. If for example, 10yr treasuries rise, that would somehow affect yields on bonds too right?
Interest rate risk means the risk that this bond’s YTM will change, for any reason (e.g., a change in Treasury rates, or a change in spread, or both). As far as I know, nobody’s named a duration measure for the change in price relative to a change in the YTM of the benchmark Treasury.