Technology
Bond Duration
Quick fact
A bond with longer maturity has higher duration, making it more sensitive to rate changes.
Why this is interesting
Did you know that a small change in interest rates can cause big swings in your bond portfolio? Understanding bond duration helps you predict and manage this risk.
Read the full explanation
Understanding Bond Duration
Bond duration is a measure of how much a bond's price will change if interest rates move. It helps investors understand the risk they're taking when buying bonds. The longer the time until the bond matures, the more its price will fluctuate with interest rate changes.
A deeper explanation
Bond duration reflects the weighted average time it takes to receive all cash flows from a bond. This metric shows how sensitive the bond's price is to changes in market interest rates. A higher duration means greater sensitivity and thus higher risk, which investors must consider when making investment decisions.