Key points
- Higher duration = greater sensitivity to interest rates.
- A 10-year Treasury has a duration of about 8: if yields rise 1 percentage point, its price falls about 8%.
- Duration lengthens as yields fall, so low-yield bonds are more sensitive.
Example
If a bond has a duration of 5.5 and yields rise by 0.40 percentage points, its price falls roughly 2.2%.
In history
In 2022 the broad US bond market (the Bloomberg US Aggregate index, duration about 6) lost about 13%, and long-dated Treasuries about 30%, as the Fed raised rates.
Related terms