Th e table below shows the spread duration for a 70-bond portfolio and a benchmark index based on sectors. Determine whether the portfolio or the benchmark is more sensitive to changes in the sector spread by determining the spread duration for each. Given your answer, what is the eff ect on the portfolio’s tracking risk?

Portfolio Benchmark Sector

% of Portfolio Spread Duration

% of Portfolio Spread Duration Treasury 22.70 0.00 23.10 0.00 Agencies 12.20 4.56 6.54 4.41 Financial institutions 6.23 3.23 5.89 3.35 Industrials 14.12 11.04 14.33 10.63 Utilities 6.49 2.10 6.28 2.58 Non-US credit 6.56 2.05 6.80 1.98 Mortgage 31.70 1.78 33.20 1.11 Asset backed — 2.40 1.57 3.34 CMBS — 5.60 2.29 4.67 Total 100.00 100.00