Yield spread widens = decrease spread duration?

OK, I was officially not with it yesterday.

I apologize.

When a (straight) bond’s YTM increases, its modified (or effective) duration decreases.

A risky bond’s spread duration equals its modified (or effective) duration.

If a risky bond’s spread widens, its YTM increases, so its modified (or effective) duration decreases, so its spread duration decreases.

I just started the first week of my two-week Spring semi-break. (One university at which I teach is off this week; the other two are off next week.) It hasn’t come too soon.

page 221 book 3 schweser

No worries I think we get it s2000. It doesn’t really change anything about when or why to increase or decrease duration based on expectations of yield changes. All the text are clear in that duration is dynamic and not a static. The sheer fact that as seconds go by its duration will change. That’s why we were taught that duration matching is not a static hedge. It requires continuous rebalancing because its duration will typically change after every yield change. And to add even more, for large yield moves convexity needs to be accounted for. I get more nervous every time I post now in fear of being called out.

So, s2000magician, the quote I wrote down above mentions that if we expect spreads to widen, we should decrease spread duration.

If duration is already going to decline as a result of widening spreads, that means we should decrease it further?

I see no need to decrease it further. As long as you reduce it based on the widening spread, that should be fine.

Okay, sounds good. Thanks for the help.