Duration measures how much a bond's price is expected to move in response to a change in interest rates. It aggregates the timing and size of all cash flows (coupons and principal) into a single number, usually expressed in years. Several definitions are widely used:
Investors and portfolio managers compare bonds by duration to assess interest-rate sensitivity. It is used to estimate the approximate price impact from a given move in yields and to structure portfolios with a target sensitivity (for example, duration matching or immunization). Duration also helps in evaluating risk relative to time horizon and liquidity considerations.
Duration is a first-order approximation and does not capture convexity, which can affect larger yield moves. It depends on yield, coupon rate, and time to maturity; zero-coupon bonds have duration equal to their maturity, while higher coupons tend to shorten duration relative to maturity. In practice, duration is one input among several used in fixed-income analysis.
For example, if a bond has a modified duration of 5.0, a 1 percentage point change in yield would imply about a 5% price decline, all else equal.
Macaulay duration · Modified duration · Effective duration · Yield to maturity · Convexity · Bond price