Using Yield, Duration, and Carry to Compare Bonds for Relative Value

Summary

The document asks whether comparing bond yield to maturity is less informative for relative-value analysis than comparing yield to duration. The concern is that bonds with the same maturity can have different coupons and therefore different yields, even when financing, structural features, and liquidity are not driving the difference. Comparing duration is presented as a way to match interest-rate sensitivity more closely, though the document does not claim that this alone identifies mispricing.

The answer describes yield versus maturity as a simple visual screen and yield versus duration as a richer comparison. It also points to asset-swap and constant-maturity swap levels, as well as carry and roll, as alternative ways traders assess relative value. These approaches account for factors a simple yield-maturity plot omits, including coupon effects and relative attractiveness. The discussion is qualitative: it gives no calculation, dataset, or trade example, and duration matching does not by itself control for every bond-specific factor.

Key ideas

• Bonds with the same maturity can have different yields partly because their coupons differ.
• Yield versus maturity is a simple screen that omits relevant bond characteristics.
• Comparing yield against duration can better align bonds by interest-rate sensitivity.
• Asset-swap levels, constant-maturity swap levels, carry, and roll offer additional relative-value perspectives.
• Duration matching alone does not account for all financing, structural, or liquidity effects.

Tags

# Bond RV YTM vs maturity or YTM vs duration


# Bond RV YTM vs maturity or YTM vs duration












I was reading some material online - seems to be a mixed bag of people who analyse yields vs maturity and yields vs duration.

To me, looking at yield vs maturity is slightly misleading - as, for a single maturity there are sometimes different issues with different coupons. These all trade at a different yield which (in the absence of financing advantages/structural factors/liquidity premia), I'd attribute to coupon differences, therefore, there is no real RV.

Instead, isn't looking at bonds of similar duration a 'cleaner' approach to identify RV (as obviously you are only comparing apples to apples here)? If so, what is the reason for people still looking at YTM vs maturity in the context of RV?

Thanks

## Answer by zarah (score 1)

https://quant.stackexchange.com/a/76376

There are many different ways in which you can find RV between bonds. ASW levels is definitely one, another is CAS. Traders use carry+roll to try to assess RV between bonds, which takes into account both the coupon and the relative attractiveness of one bond over the others. You are 100% correct that YTM vs Maturity is a simplistic approach that does not take into account important factors, but for the sake of a simpler identification people take a look at it. I would consider the YTM vs maturity as your simple graph chart, while the ytm vs duration would be more like the candle chart with much more useful information... but for a simpler "look" you prefer the simpler one. Hope that answers your questions.

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