Duration
Fixed IncomeDefinition
How sensitive a bond's price is to changes in interest rates. A duration of 5 means: if interest rates rise by 1 percentage point, the bond's price will fall by about 5%. It is the single most important risk measure for a bond investor.
Longer-maturity bonds have higher duration, meaning they swing more when rates move. A 30-year Treasury can have a duration of 18. A 2-year Treasury has a duration of about 2.
Longer-maturity bonds have higher duration, meaning they swing more when rates move. A 30-year Treasury can have a duration of 18. A 2-year Treasury has a duration of about 2.
Formula
Approximate price change in % = minus Duration times change in yield (in percentage points)
Example
In 2022, long-term Treasury bonds had a duration of about 18. The Fed raised rates roughly 4 percentage points that year. Long Treasuries lost roughly 30% in value. The math: 4 times 18 divided by some convexity adjustment.