Bond Parameters
Quick Examples
Load a preset to explore different credit risk profiles:
Assumptions
- Linear price-spread approximation (first-order)
- Interest rates unchanged (spread-only shock)
- Ignores convexity, default, and liquidity effects
- Modified duration used as proxy for spread duration
DTS Results
Spread Sensitivity
Estimated price change if spread moves:
Visualization
Understanding Duration Times Spread (DTS)
What is Duration Times Spread?
Duration Times Spread (DTS) is a credit risk metric developed by Lehman Brothers (now part of Barclays) that measures a bond's sensitivity to relative changes in credit spreads. It combines two key characteristics: the bond's duration (price sensitivity) and its credit spread (compensation for credit risk).
DTS is particularly useful for comparing credit risk across bonds with very different spread levels. A 10 basis point spread widening means something very different for a bond trading at 50 bps versus one at 500 bps.
How to Calculate DTS
The DTS formula is straightforward:
For example, a bond with 5 years of modified duration and a 200 basis point spread has a DTS of 1,000 (5 x 200 = 1,000).
Price Change Approximation
DTS can be used to estimate the price impact of relative spread changes:
This approximation works well for small spread movements. For larger changes or bonds with significant convexity, actual price changes may differ.
DTS Risk Categories
While there are no universally standardized thresholds, the following categories provide useful guidance:
- Low (DTS < 300): Short-duration investment grade bonds with tight spreads
- Moderate (DTS 300-600): Typical investment grade corporate bonds
- High (DTS 600-1000): Longer-duration IG or shorter-duration high yield
- Very High (DTS > 1000): Long-duration high yield or distressed credits
Why DTS Matters for Portfolio Management
- Risk Budgeting: Allocate credit risk across positions using DTS as a common denominator
- Relative Value: Compare risk-adjusted returns across bonds with different characteristics
- Scenario Analysis: Estimate portfolio impact from spread widening/tightening
- Position Sizing: Size positions to achieve consistent risk contribution
DTS vs. Spread Duration
Both metrics measure spread sensitivity, but with different denominators:
- Spread Duration: Measures absolute price sensitivity (% price change per 1 bp spread change)
- DTS: Measures relative price sensitivity (% price change per 1% relative spread change)
DTS is more useful when comparing bonds across different rating tiers, as it normalizes for different spread levels.
Market Benchmarks
As reference points for current market conditions:
- Investment Grade (broad): DTS typically ranges from 400-700, depending on duration profile
- High Yield: DTS typically ranges from 700-1000 or higher
These values fluctuate with market conditions. During credit stress, spreads widen and DTS increases across the board.
Frequently Asked Questions
Important Disclaimer
This calculator is for educational purposes only. It provides a first-order linear approximation of price changes. Actual price movements may differ due to convexity, default risk, liquidity, and other factors. The risk categories shown are illustrative guidelines, not standardized industry thresholds. This is not financial advice.
