Duration — bond price sensitivity to rate moves. Duration (commonly modified duration) approximates how much a bond’s price will change for a 1 percentage-point change in yield: %Δprice ≈ −(duration) × Δyield. It reflects both the timing and size of cash flows: longer maturities and lower coupon bonds generally have higher durations and therefore greater sensitivity to interest-rate changes. Duration is a central metric for fixed-income investors because it translates interest-rate risk into a single, intuitive number that can be aggregated across bonds and funds.

Using duration in portfolio construction and hedging. Manage interest-rate exposure by targeting portfolio duration that matches your risk tolerance or liability horizon (duration matching). Investors can reduce duration by buying shorter-term bonds, increasing coupon exposure, or using floating-rate notes. Bond ladders (staggered maturities) reduce reinvestment and interest-rate timing risk. For larger portfolios, duration hedges (interest-rate swaps, futures) can alter sensitivity efficiently, but they add complexity and counterparty considerations. Recall that duration is a linear approximation—during large yield moves, convexity becomes important; higher convexity cushions price declines when rates rise. Combine duration and convexity analysis for realistic scenario planning.