Adjusted Spread Duration is spread duration scaled by the level of each security’s spread to account for different spread volatilities.
Cash Flow Yield (CFY) the option-adjusted measure of expected return.
Convexity is the second order, option-adjusted price sensitivity to a parallel shift in interest rates.
Credit Quality is a measure of a bond issuer’s ability to repay interest and principal in a timely manner. Credit ratings are based on each portfolio security’s rating as provided by the following Nationally Recognized Statistical Rating Organizations (“NRSRO”): Standard and Poor’s ("S&P"), Moody’s Investors Service (“Moody’s”), Fitch Ratings, Ltd. In the absence of an NRSRO rating, Western Asset may assign a comparable rating. The credit quality of the investments in the portfolio does not apply to the stability or safety of the portfolio. The portfolio itself has not been rated by an independent rating agency.
Diversified Risk is the contribution of a group of risk factors to total tracking error (or volatility if the portfolio is not managed to a benchmark) from a group of risk factors that consider estimated correlations among all risk factors, rather than the worst-case assumptions embodied in total Undiversified Risk.
Duration is the option-adjusted price sensitivity to a parallel shift in interest rates.
Ex-Ante Expected Shortfall (ES) is the forward-looking estimate of average loss if the loss is more than VaR at predetermined confidence level assuming the exposures of portfolio and benchmark are held constant going forward. For example, a 99% ES of 450 bps/month means that within the worst 1% of cases that the portfolio loses more than the VAR of 400 bps; the average loss in those 1% worst cases is 450 bps.
Ex-Ante Tracking Error Volatility is the forward-looking estimate of standard deviation of the difference between portfolio return and benchmark return (i.e., active return) assuming the exposures of portfolio and benchmark are held constant going forward.
Ex-Ante Value at Risk (VaR) is the forward-looking estimate of maximum loss at a pre-defined confidence level assuming the exposures of portfolio and benchmark are held constant going forward. For example, a 99% VaR of 400 bps/month means that the portfolio is expected to not lose more than 400 bps in one month 99% of the time.
Ex-Ante Volatility Ratio is the forward-looking ratio of a portfolio’s volatility to its benchmark’s volatility assuming the exposures of portfolio and benchmark are held constant going forward.
Key Rate Duration (KRD) is the option-adjusted price sensitivity to the changes in interest rates located close to the given key interest rate tenors (e.g., 6M, 2Y, 5Y, 10Y, 20Y, 30Y).
Option Adjusted Spread (OAS) is a measure of expected excess return over the risk-free rates that considered embedded options and possible pre-payments.
Spread Duration is the option-adjusted price sensitivity to the change in option adjusted spread.
Undiversified Risk is the standard deviation of return contribution attributable to a group of risk factors on a standalone basis. Total undiversified risk is an indicator of the potential tracking error under a stress scenario whereby pre-selected groups of risk factors become perfectly correlated.
Yield-to-Worst (YTW) is the lesser of yield-to-maturity or yield-to-call across all known call dates.