Duration: why long bonds fall harder
· beginner
Automated material · TradeAlmanac editorial deskDraft prepared by a language model from our stored data; not reviewed by an editor.
Two bonds with the same time to maturity can react differently to a rate change. Duration explains the difference.
What it is
Duration is the weighted average time to recover the money invested. The weighting is by the size of the payments: the larger the coupon, the sooner the bulk of the investment returns to you, and the shorter the duration.
That is exactly why duration is not the same as time to maturity. For a zero-coupon bond they coincide; for a coupon-paying one duration is always shorter.
What it is for
Duration measures price sensitivity to rates. The larger it is, the more sharply a bond's price reacts to a change in Key rate.
A put date changes the calculation
If an issue has a Put date (offer), yield and duration have to be computed to that date rather than to maturity. After it the issuer may set a new coupon — and almost always sets it in their own interest rather than yours.
A practical rule
Duration is not a forecast. It answers "how much will it hurt if", not "what will happen". It does not help predict the direction of rates.
Draft prepared by a language model from our stored data; not reviewed by an editor.
Model: claude-opus-5
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