What is bond duration?
In one line: Duration estimates how much a bond's price changes when interest rates move. A duration of 7 means about a 7% price change per 1-point move.
A simple example
A Bond's price falls when rates rise. Duration tells you roughly how much.
The rule of thumb: price change ≈ −duration × change in rates.
Say you own a bond fund with a duration of 7 years. Rates rise by 1 percentage point.
- Price change ≈ −7 × 1% = about −7%.
- On $10,000, that's about $700 lower.
If rates fall 1 point, it's the other way: about +7%.
Now take a short-term fund with a duration of 2. The same 1-point rise means about −2%, or $200 on $10,000. A math example, not a promise. It's an estimate, best for small moves.
Why it matters
Duration is a quick way to see risk in bonds. Longer duration means bigger swings.
- Longer bonds have more duration. More of their payments sit far in the future.
- Lower Coupons have more duration. More of their value comes in the final repayment.
This is why long-term Treasury funds can drop sharply in a year of fast rate hikes, while short-term ones barely move. Our TLT page shows a long-duration bond ETF in action.
A common mistake
Thinking duration is just "years until the bond ends." It's measured in years, but it's not the same as the bond's maturity. A 10-year bond with coupons has a duration under 10, because you get some money back along the way.
Bond fund pages usually list "average duration" or "effective duration." Check it before buying. It tells you more about rate risk than the fund's name does.
Questions
What is a good duration for a bond?
It depends on your plan. Short duration means smaller swings when rates change. Long duration means bigger swings both ways.
Why does duration go up when coupons go down?
With a small coupon, more of your money arrives at the very end. Payments far away are more sensitive to rate changes.
Is duration the same as maturity?
No. Maturity is when the bond ends. Duration measures price sensitivity, and is usually shorter than maturity for bonds that pay coupons.
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