Duration - Financial definition
Financial acronyms
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Concise definition of the term duration
Duration is a summary measure of maturity, coupon and yield effects that is used to approximate a bond's interest rate risk.
Comprehensive definition of the term duration
Also called «Macaulay duration», it expresses the weighted average time to maturity of a bond's cash flows.
Characteristics
The higher a bond's coupon rate and yield, the lower its duration, and the longer its maturity, the higher its duration.
Zero coupon bonds have a duration which is equal to its maturity, as they do not generate any cash flows before maturity.
Interpretation
The higher a bond's duration, the more sensitive it is to variations in market rates. It is thus consideded riskier than a bond with a lower duration