Duration: same move, different bond
Two bonds, one interest rate change. Why does one swing twice as much?
For educational purposes only. Simplified illustrations to help you understand how things work. Not financial, investment or tax advice, and not a recommendation.
The rule: duration is the multiplier. A 10-year duration bond moves about twice as much as a 5-year one, in both directions.
Interest rates fallInterest rates rise
$1,000 bond · 5-year duration$951-4.9%
$1,000 bond · 10-year duration$906-9.4%
The 10-year duration bond moved about 1.9× as much as the 5-year one.
- Duration is the multiplier on every rate move
- Double the duration, roughly double the swing
- It works in both directions
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