Bond Duration: Why Rate Changes Affect Bonds Differently

Two investments described as fixed income can react very differently when yields change. FINRA explains duration as a measure of a bond price’s interest-rate sensitivity: a higher duration generally means greater sensitivity. It is not simply the number of years remaining until maturity.

Consider an approximation rather than a promise. A portfolio with modified duration of five could experience a price decline of roughly 5% for a one-percentage-point increase in yield, with other factors unchanged. The size of the move, convexity and cash-flow structure affect the result, so the estimate is not exact.

Duration does not answer every risk question. Changes in an issuer’s creditworthiness, limited liquidity and call provisions can also matter. An investor able to hold a bond to a particular date faces a different practical situation from someone who may need to sell earlier.

When reviewing a bond fund, examine duration, credit quality, currency exposure and costs rather than focusing only on the displayed yield. Distinguish a past return from a yield calculation that relies on assumptions about the future.

This explanation was reviewed in November 2026. It does not recommend increasing or reducing duration in any particular portfolio.