Interest-rate sensitivity measure showing how strongly a bond's price should react to yield changes.
Duration is a measure of how sensitive a bond’s price is to changes in interest rates. In fixed income, people often say bond duration to mean this same concept. It is one of the most important risk measures in fixed income because it helps investors estimate how much a bond may rise or fall when yields change.
At a high level, duration tells you:
Many beginners assume maturity alone explains bond sensitivity. That is incomplete.
Duration matters because it accounts not just for final maturity, but for the timing of all coupon and principal cash flows.
A bond that returns more cash earlier usually has lower duration than a bond that returns more cash later.
As a practical rule of thumb:
So if two bonds experience the same market-rate move, the bond with higher duration usually has the larger price change.
Duration is often used as a first-order approximation:
Where:
The negative sign reflects the inverse relationship between bond prices and yields.
The term “duration” can mean different versions depending on context:
| Measure | Main question | Best use | Main limitation |
|---|---|---|---|
| Duration | How much should the bond’s price react to a small yield move? | First-pass rate-risk analysis and portfolio sensitivity checks | Less accurate when yield moves are large or the bond has embedded options |
| Maturity | When is the final principal repayment due? | Basic time-to-repayment reference | Says little about the timing of coupons or true rate sensitivity |
| Convexity | How does the duration estimate bend as yields move? | Refining price sensitivity for larger rate moves | Harder to interpret quickly than duration |
That is why fixed-income teams often start with duration, not maturity, when they want an actionable view of rate risk.
Maturity and duration are related, but not the same.
A high-coupon bond and a low-coupon bond with the same maturity can have different durations because their cash-flow timing is different.
Duration helps with:
It is one of the central tools used in both portfolio management and risk management.