Bonds & rates
Duration
How much a bond’s price moves when interest rates change, expressed in years.
How it works
Duration is the single most important number in fixed income. A duration of 7 means a 1% rise in rates costs roughly 7% of the bond’s price.
It is also a weighted average of when you receive your money. Longer maturities and lower coupons both push duration up, because more of the value sits further away.
Where it misleads people
This is the mechanism behind the 2022 bond losses that surprised so many people. Long-duration government bonds are not low-risk; they are low credit-risk and high interest-rate risk.
Formula
Approximate price change ≈ −duration × change in yieldWorked example
A bond fund with duration 8 facing a 2% rise in rates loses roughly 16% of its value — a very large loss for something bought as the safe part of a portfolio.
Related terms
- Modified durationDuration adjusted for the bond’s own yield, giving a direct estimate of price sensitivity.
- ConvexityHow duration itself changes as yields move — the curvature in a bond’s price-yield relationship.
- Interest-rate riskThe risk that rising interest rates reduce the market value of bonds you already hold.
- BondA loan you make to a government or company, which pays you interest and returns your money on a set date.
- Yield curveA chart of government bond yields across maturities, from months to decades.
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Educational reference only. Nothing here is investment advice or a recommendation to buy or sell anything, and tax treatment depends on your own circumstances and the country you are in.