Duration describes one source of bond risk. It is neither a promised holding period nor a complete risk measure.
Separate the questions
When reading a bond factsheet, distinguish its maturity date, coupon, yield, and duration. These terms answer different questions. Writing them in separate columns is a simple way to avoid treating an income payment as a measure of price stability.
Interpret sensitivity carefully
For a conventional fixed-rate bond, price and market yield generally move in opposite directions. Modified duration estimates the percentage price response to a small yield change. It is an approximation that becomes less reliable for larger moves or securities with embedded options.
A hypothetical illustration
A bond with a modified duration of five could lose approximately 5% in price if its yield rose by one percentage point, before considering convexity or income. This deliberately simplified example is not a forecast, a quotation, or a representation of any current security.
Read beyond a single number
An analysis should also ask who is responsible for repayment, how readily the bond can be sold, and what happens if inflation changes. A bond fund does not behave exactly like an individual bond held to maturity. Its holdings and sensitivity can change over time.
Sources & context
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