What is the typical measure of risk for an IG bond portfolio?

The typical measure of risk for an investment-grade (IG) bond portfolio is spread duration. This measure quantifies the sensitivity of the bond's price to a change in the credit spread, reflecting the additional yield required by investors for taking on credit risk over risk-free treasuries. It's particularly relevant for IG bonds, where credit quality is generally high but still subject to factors such as changing interest rates and economic conditions that can influence credit spreads.

Spread duration captures the relationship between changes in credit spreads and the price movement of the bonds, making it a vital tool for portfolio managers assessing risk in the context of credit markets. It gives a clearer picture of how a bond portfolio might react to shifts in market perceptions of credit risk, which is critical for managing investment-grade securities.

Other measures such as modified duration and effective duration focus primarily on the sensitivity of bond prices to changes in interest rates rather than credit risks. Convexity, while also important in assessing price sensitivity, does not specifically address spread risk. Thus, spread duration is the most appropriate risk measure for an IG bond portfolio, as it directly relates to the bond's exposure to changes in credit fundamentals.