RT Journal Article SR Electronic T1 From ad hoc Bond-Risk Measures to Variance-Covariance Forecasts JF The Journal of Fixed Income FD Institutional Investor Journals SP jfi.2021.1.105 DO 10.3905/jfi.2021.1.105 A1 Marielle De Jong A1 Frank J. Fabozzi YR 2021 UL https://pm-research.com/content/early/2021/01/28/jfi.2021.1.105.abstract AB It is common practice among investors to assess the risks of a fixed-income investment by looking at certain bond characteristics—and at two in particular. The duration provides insight on a bond’s contribution to the interest-rate risk of a portfolio, and the credit spreads provide information about credit risks. Linking these measures together in order to obtain one forecast for the overall price behavior of a bond and bond portfolio is not trivial, however. Although the popular method of taking products, the so-called Duration-Times-Spread rule, is effective and superior to using spread duration, it stops short of delivering complete risk estimates. In this article, we propose a method that does provide a complete risk estimate, and describe how bond characteristics can be converted into return variance and covariance forecasts.TOPICS: Fixed income and structured finance, risk management, portfolio construction, quantitative methods, statistical methodsKey Findings▪ We propose a method to convert the durations and credit spreads of bond portfolios into return variance and covariance forecasts.▪ The conversion method is a direct extension of the Duration-Times-Spread rule.▪ The method helps bridge the gap between front-office portfolio management tools and back-office risk control systems.