What Is Bond Duration?

Duration is a measure of how sensitive a bond’s price is to changes in interest rates, expressed as a number of years. A bond with a duration of 5 will, roughly speaking, lose about 5% of its value if interest rates rise by one percentage point, and gain about 5% if rates fall by one point. It is the single most-used number for comparing interest-rate risk across bonds, and it means something quite different from a bond’s stated maturity, even though both are expressed in years.

Why price and interest rates move opposite each other

A bond is a promise to pay a fixed stream of coupon payments plus a return of principal at maturity. Once that bond is issued, its coupon rate is locked in — but market interest rates keep moving. If rates rise after a bond is issued, new bonds start offering higher coupons than the older bond does, which makes the older, lower-coupon bond less attractive by comparison; its price has to fall until its effective yield lines up with what the new market rate demands. The reverse happens when rates fall: an older bond with a locked-in, now relatively generous coupon becomes more valuable, and its price rises. Duration quantifies exactly how much that price moves for a given change in rates.

Duration is not the same as maturity

It’s tempting to assume a bond’s time to maturity tells you its rate sensitivity, but duration accounts for something maturity alone doesn’t: the timing of all the cash flows, not just the final one. A bond that pays no coupons at all — a zero-coupon bond — has a duration equal to its maturity, since the only cash flow is the single payment at the end. But a coupon-paying bond returns some of its value earlier, through periodic coupon payments, which shortens its effective duration below its stated maturity. A 10-year bond paying a generous coupon has a lower duration than a 10-year zero-coupon bond, because more of its total value arrives sooner, before the far-off effects of a rate change have as much time to compound.

This is the practical reason duration matters more than maturity for comparing rate risk: two bonds with the same maturity date can have meaningfully different price sensitivity if their coupon structures differ.

What drives duration up or down

A few consistent patterns hold across bonds:

• Longer maturity, higher duration. More distant cash flows are more sensitive to a given change in the discount rate, since the effect compounds over more years.
• Lower coupon, higher duration. A lower coupon means more of the bond’s value sits in the single final payment rather than being returned earlier through coupons, pushing effective duration closer to full maturity.
• Lower yield, higher duration. At a lower prevailing yield, future cash flows are discounted less aggressively, so they contribute more to the bond’s present value — and a rate change has more value to act on.

Put together: a long-dated, low-coupon bond bought when yields are low is about the most rate-sensitive instrument on this list. A short-dated, high-coupon bond is about the least.

Modified duration: turning years into a price estimate

The version of duration used for a quick price-impact estimate is modified duration, which adjusts the raw (Macaulay) duration figure so it can be read directly as an approximate percentage price change per one-percentage-point change in yield. A bond with a modified duration of 7 will fall in price by roughly 7% if yields rise by one percentage point, and rise by roughly 7% if yields fall by one point. This approximation holds well for small rate moves and gets progressively less accurate for large ones, since the actual price-yield relationship curves rather than moving in a straight line — a refinement called convexity accounts for that curvature, but duration alone is usually the number quoted first.

Portfolio duration and rate positioning

Duration doesn’t just apply to a single bond — a portfolio’s overall duration is the weighted average of the durations of everything it holds, and it’s the main lever investors use to express a view on interest rates. A portfolio manager who expects rates to fall extends duration, buying longer or lower-coupon bonds to maximize the price gain when rates do fall. One who expects rates to rise shortens duration, favoring short-dated or higher-coupon bonds to minimize the damage. This is also why a bond ladder — holding bonds across a spread of maturities rather than concentrating in one — is a common way to manage duration risk without having to predict rate direction correctly: it blends short-duration and long-duration holdings into a single portfolio with moderate, diversified sensitivity.

Duration at a glance

Bond characteristic	Effect on duration
Longer maturity	Higher
Lower coupon rate	Higher
Lower prevailing yield	Higher
Zero-coupon bond	Duration equals maturity (the maximum case)

Why this matters beyond bond investors

Duration reasoning shows up well beyond individual bond picking. It’s the underlying logic behind why bond funds with longer average maturities are described as riskier when rates are expected to rise, why a rate hike hits long-dated Treasuries harder than short-term bills, and why “duration risk” became a standalone phrase in financial commentary — it’s simply the same price-sensitivity concept applied to a fund or portfolio rather than a single bond.

The takeaway

Duration measures how much a bond’s price moves for a given change in interest rates, and unlike maturity, it accounts for the timing of every cash flow the bond pays, not just the final one. Longer maturities, lower coupons, and lower prevailing yields all push duration higher; shorter maturities and richer coupons pull it lower. It’s the number to check first when comparing interest-rate risk across bonds or bond funds, since two instruments that look similar on maturity alone can carry very different exposure to the next rate move.