Duration and Rate Risk

Duration tells you how much a bond’s price will move when interest rates change. Longer bonds swing far more than short ones. Here is the rule of thumb and how 2022 put it to the test.

The rule of thumb

Duration, measured in years, estimates how sensitive a bond is to rates. For each 1% rise in yields, a bond’s price falls by roughly its duration in percent. A bond with a duration of 8 would fall about 8% if yields rose 1%.

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