GLOSSARY TERM
Duration
Duration is a measure that shows how sensitive a bond or bond fund is to changes in interest rates.
What does this mean in practice?
If interest rates rise, bonds with longer duration usually fall more in value. If interest rates fall, they usually rise more. This means duration helps you understand how much a bond investment may move when rates change. In simple terms, longer duration usually means higher interest rate risk, while shorter duration usually means lower interest rate risk.
Example
Imagine two bond funds. One has a duration of 2 years and the other 8 years. If interest rates rise, the fund with 8-year duration will usually fall more than the fund with 2-year duration.
Why it matters
Duration helps you understand that not all bond investments behave the same way. It shows why some bond funds are steadier, while others can move more when interest rates change.
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