How to Estimate Price Changes from Interest Rate Increases

Discover how to approximate the percentage price change of bonds due to interest rate changes using spread duration. This critical concept helps manage fixed-income investment risks effectively, providing a clearer understanding of asset valuations in a shifting market.

How to Estimate Price Changes from Interest Rate Increases

Let’s kick things off with a pivotal concept for any CFA Level 3 candidate: understanding how interest rates affect bond prices. You’re probably aware that when rates climb, bond prices tend to take a nosedive. But how can we quantify that change? Well, here’s where the savvy realm of spread duration comes into play.

What’s Spread Duration, Anyway?

You may ask yourself,

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