Duration is the sensitivity of a bond's price to a change in interest rates, expressed in years. A duration of 7 means a 100bp yield rise cuts price roughly 7%. It is the primary measure of interest-rate risk in fixed-income portfolios.
How it works
Macaulay duration is the cash-flow-weighted average time to receive a bond's payments; modified duration divides this by (1 + yield) to give the percentage price change per 1% yield move. Longer maturities, lower coupons, and lower yields all lengthen duration. Convexity captures the curvature duration's linear approximation misses.
Why it matters now
In the 2025–2026 reflationary regime, sticky inflation and heavy Treasury supply keep the long end vulnerable, making duration "unattractive" — investors are paid little term premium to bear the rate risk of holding long bonds.
Example
A 10-year Treasury with a 4% coupon yielding 4.5% carries a modified duration near 8. If yields jump 50bp to 5.0%, the bond loses roughly 4% in price (8 × 0.50%). The 2022 cycle showed this brutally: the Bloomberg US Aggregate, with ~6.5 years duration, fell ~13% as yields repriced.
Frequently asked
- What is duration in bonds?
- Duration is the sensitivity of a bond's price to interest-rate changes, expressed in years. A bond with a duration of 7 loses roughly 7% of its value when yields rise 100 basis points
Glossary · 25bp / bp
A basis point (bp) is one-hundredth of a percentage point (0.01%); 25bp equals 0.25 percentage points, the conventional increment of a single central-bank rate move. Policymakers quote rate changes, yields, and spreads in basis points to avoid the ambiguity of percentage-of-a-percentage phrasing.
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- How is duration different from maturity?
- Duration differs from maturity by weighting each cash flow by when it arrives and discounting it to present value, whereas maturity is simply the final repayment date. A 10-year zero-coupon bond has duration equal to its maturity, but a 10-year coupon bond has shorter duration because earlier coupons return capital sooner.
- Why does duration matter for rate risk?
- Duration matters because it quantifies how much a bond or portfolio will gain or lose for a given yield move, letting desks size and hedge interest-rate exposure. The 2022 selloff demonstrated this: the Bloomberg US Aggregate, with about 6.5 years duration, fell roughly 13% as Treasury yields repriced sharply higher.
- What is the difference between duration and convexity?
- Duration gives a linear, first-order estimate of price change for small yield moves, while convexity
Glossary · convexity
Convexity is the curvature in the relationship between an asset's price and an underlying variable such as yield — the second-order term beyond linear (delta or duration) sensitivity. Positive convexity means gains accelerate and losses decelerate as the variable moves, an asymmetry that rewards holders when volatility rises.
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- Why is duration unattractive in 2025?
- Duration is unattractive in 2025 because sticky inflation, heavy Treasury supply, and a thin term premium mean investors are poorly compensated for the rate risk of holding long bonds. In a reflationary regime that favours risk assets, taking duration exposure offers limited upside against meaningful downside if yields back up.