This is the risk that a portfolio's value will change due to a change in the shape rather than the level of the yield curve. Multiple portfolios can be constructed to have the same duration but with very different exposures to yield curve risk. The most widely known portfolio structures are bulleted (with most of the cash flows paid at one point in the future), barbelled (with a cluster of securities with long maturities offset with short maturities), and laddered (with maturities spread out across the maturity spectrum). As with interest rate risk, the key drivers of yield curve risk are macroeconomic factors. If the central bank is easing monetary policy and/or markets are concerned about future inflation, generally the yield curve will steepen. Also, technical factors can play a large role in yield curve risk. For example, in the early part of 2000, the long end of the U.S. yield curve inverted due to the lack of supply of long bonds and the fact that the U.S. Treasury was buying back long Treasuries in the secondary market. The measure that is often used in quantifying yield curve risk is partial duration or key-rate duration. This measure indicates how much of a portfolio's total duration comes from cash flows in each part of the yield curve. At GSAM, we break out each portfolio's duration into partial durations at 10 different yield curve nodes: 3-month, 6-month, 1-year, 2-year, 3-year, 5-year, 7-year, 10-year, 20-year, and 30-year. Sector Risk Sector risk is the volatility of returns due to yield changes derived from changes in spread between the sector in question and the baseline yield curve (either the government or swap curve). A multitude of factors drive spreads of the various fixed income sectors to tighten and widen, but generally the spread changes are due to significant changes in issuance of the sector or an increase or decrease in other risks that are prevalent in that sector such as credit risk for corporate bonds or volatility and prepayment risk for mortgage-backed securities. The measure that is most often used to describe a portfolio's exposure to spread risk of a particular sector is contribution to duration (CTD). CTD is the market value weighted average duration of a portfolio's holdings of the sector multiplied by the market value weight of the portfolio held in that sector. For example, if a portfolio holds a 20 percent position in corporate bonds and the average duration of the corporates held is four years, then the CTD of corporates in the portfolio is 0.8 years (20% X 4). The reason this methodology results in a more effective measure than using just the market weight of the portfolio is because one can determine the impact on return by simply multiplying the CTD by the change in the market spread for the sector. For sectors that exhibit substantial probabilities of default, though, market weight may be a better measure of sector risk because the prices of these securities are more dependent on the probability of default than on the level of interest rates.