Course · Act I: Rates Move · Chapter 3
Bond duration and interest rate risk
Duration as one number for a bond’s interest rate risk: why a 30-year bond falls much further than a 2-year when rates rise, and where convexity bends the rule of thumb.
Key terms
- Duration
- A bond’s sensitivity to rates. Modified duration ≈ the % price move for a 1-point move in yield.
- Convexity
- The bend in the price curve: real prices fall a little less and rise a little more than duration says.
“Duration” is part of the full course: 6 puzzles on bond duration and interest rate risk. Gullwing and Osprey are fictional banks; the Treasury yields and Fed rates are real. Try this act’s free chapter, “A Loan You Can Sell”, first.
“Duration” is in Act I: Rates Move. 6 puzzles, unlimited retries.
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