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Duration (Bonds)
financial-conceptsfixed-incomebond-valuation
Duration is a key measure in fixed-income analysis that quantifies the sensitivity of a bond's price to changes in interest rates. More precisely, it represents the weighted average time until a bond's cash flows (coupon payments and principal repayment) are received.
A higher duration indicates greater interest rate risk:
- Bonds with longer durations will experience larger price changes (both up and down) for a given change in interest rates.
- Bonds with shorter durations will experience smaller price changes.
Duration is central to understanding Negative Convexity (MBS) and Positive Convexity, as convexity describes how duration itself changes in response to yield movements. For example, in negative convexity, the duration of a bond behaves unfavorably for investors, lengthening when rates rise and shortening when rates fall.
References
- Vanguard. "Negative convexity in municipal bonds: The new rate regime and ..." corporate.vanguard.com.
- Touro University. "9.38 Negative Convexity – Fixed Income Mathematics." touro.pressbooks.pub.
Source material
- research add cross references to conceptsnegative convexity 2026 05 17
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