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A measure of the sensitivity of a bond's price to changes in interest rates, expressed in years.
Duration estimates how much a bond's price will change for a 1% change in interest rates. A bond with a duration of 5 years will lose approximately 5% of its value if interest rates rise by 1%. Longer-duration bonds are more sensitive to rate changes. A 30-year Treasury bond has a much higher duration than a 2-year note, making it far more volatile when rates shift. Investors who expect rates to fall prefer longer duration (to benefit from price appreciation), while those expecting rate increases prefer shorter duration to minimize losses.