Summary
Duration measures how sensitive a bond’s price is to changes in interest rates. It helps investors estimate how much a bond price may move when market interest rates change.
Duration is an important measure of interest rate risk.
Why it matters
Bond prices and interest rates generally move in opposite directions. When interest rates rise, bond prices often fall. When interest rates fall, bond prices often rise.
Duration helps investors understand how strongly a bond may react to these movements.
How to read it
A bond with a higher duration is generally more sensitive to interest rate changes. This means its price may move more sharply when interest rates change.
A bond with a lower duration is generally less sensitive and may experience smaller price movements.
Things to keep in mind
Duration does not measure credit risk or liquidity risk. A bond can have low duration but still carry issuer risk, or high duration but strong credit quality.
Investors should review duration together with maturity, yield, coupon, and issuer credit strength.