Economy and interest rates · updated October 21, 2026
What is a bond's duration and how does it show interest rate risk
Duration shows how sensitive a bond's price is to changes in interest rates. The simple rule: a bond with a duration of 7 loses about 7% of its price if yields rise one percentage point, and gains about 7% if they fall one point.
Duration formula
- Modified duration
- A number close to the years left to maturity, but smaller, because part of the money comes earlier, from the coupons.
- Change in yield
- By how many percentage points the market yield rises or falls.
Worked example
You own a bond fund with a duration of 7. Market yields rise 1 percentage point.
$1,000 invested becomes about $930. If yields fell one point, it would become about $1,070.
How to read duration
In 2022, when rates rose very fast, ETFs holding US Treasuries with more than 20 years to maturity lost around 30%. Short-term bonds barely moved.
When duration can fool you
The rule is an approximation: for big rate changes, the price moves a little differently from the simple calculation. Duration is not default risk: a very safe government bond can lose a lot because of its duration.
Related terms
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Questions about duration
What duration should I choose?
If you need the money in 1-3 years, pick a short duration, so the price does not jump around. A long duration gains more when rates fall, but loses more when they rise.
Where do I find a bond ETF's duration?
On the ETF provider's page, usually listed as "effective duration" or "modified duration".
These explanations are for information only. They are not a recommendation to buy or sell.
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