Investing term
What is Duration?
A measure of how much a bond's price moves when interest rates change. Longer duration = more price sensitivity.
Duration measures how sensitive a bond's price is to changes in interest rates, expressed in years. As a rule of thumb, a bond's price moves by roughly its duration for each 1% change in rates: a duration of 8 means an 8% price move for a 1-point rate shift. It rises with a bond's maturity and falls with a higher coupon.
Duration is the key risk gauge for bond holders, because interest-rate risk — not default — is often the bigger day-to-day mover of high-quality bonds. A long-duration bond can lose serious value if rates rise, while a short-duration one barely flinches. It cuts both ways: long duration also gains the most when rates fall, which is why investors lengthen or shorten duration based on their rate view.
For each 1% rise in rates, a bond's price falls by roughly its duration — about 2% for a 2-year, 8% for an 8-year. It's the key gauge of a bond's interest-rate risk.
For example
A bond with a duration of 8 years falls about 8% in price if interest rates rise by 1% — the same rate move barely dents a 2-year bond.
Learn it by doing
That's Duration in theory — it clicks when you use it. Practise it hands-on in a free, interactive lesson (Stage 4, Stocks, Bonds, Cash & Alternatives).
Try the free lesson →Why it matters to you
Duration matters because it turns the vague idea of 'interest-rate risk' into a single, usable number. It lets you compare bonds and bond funds directly: a fund with a duration of 2 is far steadier than one with a duration of 15, whatever their yields look like. If you're worried about rising rates, checking duration tells you how exposed you are — the single most important figure for a bond investor after credit quality.
⚠ Reaching for yield by extending duration
Long-duration bonds often pay a bit more, which tempts income-seekers to buy them — but that extra yield comes with sharply higher price risk if rates rise. A long-duration bond fund can post double-digit losses in a rising-rate year. Match your duration to your time horizon and rate outlook, not just to the highest yield on offer.