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What is Duration?

Duration refers to the amount of time before a fixed income product will return the investment (principal and interest) to the investor.

The bigger the duration number, the greater the interest-rate risk or reward for bond prices. For example, an investor should generally expect to receive better interest from a 30-year duration bond versus a 10-year, since the investor has to hold the note for longer to receive all interest payments and principal.

Long duration bonds generally tend to be higher risk when interest rates are expected to rise, since prices would fall in that scenario, leaving the investor more exposed to volatility.

Is There Anything Else I Need to Know About Bonds?
How Do I Structure My Bond Portfolio?

Keywords: fixed income, interest rates, risk, bonds, duration,