We have calculated the fair-value spread to swaps of 50-year credit by calculating the extra risk that investors take on by moving from 30-year to 50-year credit. We have broken down this extra risk into two parts: duration/convexity risk and default risk.
By moving from 30-year to 50-year credit, investors are holding a more volatile instrument, but not that much more volatile. When switching from 30-year to 50-year bonds, the time to maturity increases by two-thirds
The week on Risk.net, July 7-13, 2018Receive this by email