Duration

Definition

A measure of a bond’s price sensitivity to changes in interest rates, expressed in years. Duration estimates how much a bond’s price will change for a given change in yields: for each year of duration, the bond’s price will rise or fall by roughly 1% for a one‑percentage‑point decrease or increase in yield. In technical terms, duration is the weighted average time to receive a bond’s cash flows, which is typically shorter than its maturity for coupon‑paying bonds. Duration is a useful approximation of price sensitivity when interest-rate changes are small, but becomes less precise when changes are large.