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Fixed Income Terms
Modified Duration
Modified Duration
Parent term
Fixed Income Terms
Modified Duration is a metric that measures a bonds sensitivity to changes in yield
More about Modified Duration
Discusses The Following
Asset Classes
Fixed Income
Experts
Child Terms
Notes
The math behind it is complicated
The rule of thumb is that duration measures the percentages change in the
bonds
price
for a 1% change of
yield
Can be applied to any income
security
or
security
with similar attributes (not just
bonds
) - REITS, Loans, etc.
Example
Assume a US
Treasury Bond
has a Duration of 7.5
If interest rates move up by 1%, expect the
price
of the
bond
to drop by 7.5%
If interest rates drop by 1%, expect the
price
of the
bond
to increase by 7.5%