Protecting Capital
May 5, 2015

Duration

Written by PenderFund

Duration is a measure of a bond’s price sensitivity to a change in interest rates. It is a key factor in differentiating how funds are positioned for interest rate risk. The longer the duration (the higher the number), the higher the bond’s price sensitivity is to an interest rate change; the shorter the duration, the lower the impact on bond price.

  • If the duration of a bond is 10 and interest rates were to increase by 1%, then the price of the bond would be expected to drop by 10%.
  • If the duration of a bond is 2 and interest rates were to increase by 1%, then the price of the bond would be expected to drop by 2%.