Financial Education

Duration measures the change in value for a bond given a 100 basis point change in interest rates. However, since international rates are not perfecltly correlated with domestic rates, the duration of a foreign bond does not have the same impact on value and portfolio duration for a change in domestic interest rates.

Instead, the relationship between domestic and foreign rates can be estimated empirically to determine a country beta.

The percentage change in a foreign bond due to a change in domestic interest rates would be estimated as the product of country beta and duration. The portfolio’s weighted average duration would also be affected by the weight of the foreign bond multiplied by the product of country beta and duration.

For more information, see all articles on: Fixed income investments, Investing in bonds, Investment Returns, Portfolio Management

See also:

Breakeven Spread Analysis

Approaches to Forecasting Exchange Rates

The Market Value of a Bond

Using Economic Information to Forecast Asset Class Returns

Listing Stocks on Multiple Worldwide Exchanges