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Duration |
| Duration measures the sensitivity of a particular bond, or portfolio of bonds, to a given change in interest rates. Specifically, duration calculates the average time to receive all of the cash flows for a security. As a result, a bond's maturity date has a large influence on the calculation. Duration is measured in years and the higher the duration of a bond, the higher the price change for a given change in the level of interest rates. As a measurement tool, duration approximates the percentage change in dollar price for a bond given a 1.0% move in interest rates. Although duration is the risk measurement of choice for most fixed income managers; it is a less accurate indicator for large movements in interest rates and is often combined with convexity to provide more precise predictions. |