It seems to me when you use the longer of the 2 country’s duration in the breakeven analysis for a yield difference that you should take into account the country beta. For instance, if country 1 has a duration of 8 and country 2 has 9 but a country beta of 0.5, then you should use 8 as it is larger than 4.5, but for some reason I think I remember doing a problem where the country beta is not relevant. Can someone please let me know if they think country beta should be accounted for?
give context - what question are you looking at?
2014 morning session, question 7a. Why don’t we use the country beta in breakeven spread analysis? Wouldn’t a change in the spread in one country be more/less sensitive to the same change in another country?
I made the same error. By using the country beta the duration would reduce. While for Breakevn calculations we need to use the higher Duration.