Bond marketsLevel 2Intermediate8 minUpdated 22 Oct 2026

Duration

Duration is the most important risk measure in bond investing: it tells you by how many percent a bond's price moves when interest rates change by one percentage point.

What you'll learn

What duration means and how to read it
How to estimate a price change in your head
What convexity adds to the picture

One number that tells you the interest rate sensitivity

A duration of 5 roughly means that a one percentage point change in interest rates moves the price by about 5 percent, in the opposite direction. Rates up, price down.

This makes duration an unusually practical measure: it is one number that lets you estimate the sensitivity of any bond investment in your head. You'll find it in the key information of every bond fund and bond ETF.

Duration 5, rates +1% → price about −5%.

Try it yourself

Move the interest rate change and see how bonds of different lengths react. Notice how much more strongly a long duration moves.

Simulation · duration effect

Price change as interest rates change

Three bonds with durations of 2, 5 and 10.

Change in interest rate+1.00%

Short · D=2−2.0%

Medium · D=5−5.0%

Long · D=10−10.0%

The calculation is an indicative linear estimate. In reality the price–yield relationship is slightly curved (convexity), which works in the investor's favor in large moves.

Convexity: the fine-tuning

Duration assumes a straight-line relationship between price and yield. In reality the relationship is curved, and this curvature is called convexity.

The curvature works in the investor's favor: when rates fall a lot, the price rises slightly more than duration predicts. When rates rise a lot, the price falls slightly less. The difference is small in moderate moves but significant in large ones.

Rule of thumb

Long duration = bigger opportunity and bigger risk.

When rates fall, long duration rewards you the most. When rates rise, it punishes you the most.

When to choose short

When you don't want to take a view on the direction of interest rates.

Short duration gives a running return without much price risk: the calmest way to own bonds.

This content is for information purposes only and should not be construed as investment advice or a recommendation. Investing always involves the risk of losing capital. The value of financial instruments and investments can go up or down, and past performance is no guarantee of future returns.

Which end of the curve?

When rates have risen and the yield curve is flat or inverted, the short end is often the sweet spot of the curve: you get an attractive running return with low duration risk. At the same time, long duration is exposed to further rises.

Long-term rates only pay off if you believe interest rates will turn down. Then the prices of long bonds rise, and duration works in your favor. That is still a view on the direction of interest rates, not a neutral choice.

Short end

Return without a view.

A running return close to the policy rate, with small price risk. Suits you when you don't want to take a position on the direction of rates, and when you may need the money in the next few years.

Long end

A view that rates will fall.

Rewards you the most when rates fall and punishes you the most when they rise. A considered position, not the portfolio's default setting.

Practical positioning for most people: the weight on short maturities and high-quality credit, with long duration only as a considered choice and in the knowledge that it is a view. When real interest rates are positive, bonds are once again a genuine alternative to stocks, not just a stabilizer.

Check your understanding

Test yourself: duration

Three questions. Pick an answer to see the explanation right away.

Kysymys 1 / 3

The duration is 7 and interest rates rise by 1 percentage point. Roughly what happens to the price?

Kysymys 2 / 3

When is short duration a natural choice?

Kysymys 3 / 3

What does convexity mean for an investor?

Score: 0 / 3

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