Say two bond holdings are worth $10,000 each. After the same rise in yields, one loses about $200 and the other about $1,800. Both borrowers still make every promised payment.
Knowing that both borrowers paid on time does not explain the gap. Duration measures how strongly each price responds to changing yields.
A maturity date tells you when principal is due. Duration helps estimate what could happen to the selling price before then.
Put a number on rate risk
Duration measures interest-rate sensitivity: how much a bond's price responds to a change in yield. Bond prices and yields move in opposite directions. Duration puts a size on that move.
For a bond with fixed payments, modified duration measures sensitivity to its own yield, with those payments held fixed. It is quoted in years, but it is a price measure, not a maturity date.
Price change (%) ≈ −duration × yield change (percentage points).
For duration six and a one-point yield rise, −6 × 1 gives an estimated −6% price change.
From 4% to 5% is one percentage point, so the input is 1. Use the distance between the yields, not the new yield or its relative percentage growth.
Work a one-point shock
Assume three USD holdings worth $10,000 each, with modified durations of 2, 6 and 18 years. Give each yield the same one-percentage-point rise. The estimated price changes are −2%, −6% and −18%.
The bars show an immediate price change; a year's total return also includes income and later price moves.
For the middle holding, 6% of $10,000 is $600. The longest bar is nine times the shortest because its duration is nine times as high. The amount invested is the same.
A $200 holding at duration six has the same 6% sensitivity: about $12 of immediate downside.
Half the yield shock gives half the estimated loss. For duration six, a half-point rise means −6 × 0.5 = −3%, or about −$300 on $10,000.
What counts as high or low
The numbers 2, 6 and 18 describe relative sensitivity, not universal labels for safe and risky products. Higher duration magnifies gains when yields fall as well as losses when they rise.
Payment timing explains much of the difference. With other features equal, later maturity usually raises duration. Higher coupons bring more of a bond's value into earlier payments and lower duration. More value waiting farther away means more sensitivity to rates.
The iShares 20+ Year Treasury Bond ETF (TLT) returned −31.41% at net asset value (NAV) in calendar 2022. That US-dollar total return includes reinvested distributions and deducts fund expenses. Treasury yields rose sharply during the 2022 selloff; this annual result is separate from our one-point price estimates. Strong credit quality left plenty of room for a large loss.
Use the number with a spending date
A fund's fact sheet can put duration and maturity next to each other. Here are two fields from the iShares Core U.S. Aggregate Bond ETF (AGG):
| Reported field | Value | Meaning |
|---|---|---|
| Effective duration | 5.75 years | Rate sensitivity |
| Weighted average maturity | 8.19 years | Holdings' maturities |
Source: iShares Portfolio Characteristics, both as of September 16, 2026; the live page updates.
Effective duration is a model's estimate of sensitivity to changing market yields, allowing expected payments to change through events such as early repayment. Average maturity describes the bonds inside AGG; it is not a date when the fund repays you.
With a longer time horizon, higher yields give reinvested income more time to help offset an initial loss. Duration still supplies no recovery deadline.
Suppose you need $2,000 for a bill in six months and hold the money in AGG. Market yields across maturities rise one percentage point. Which field estimates the price hit, and does either promise $2,000 on your deadline?
The 5.75-year effective duration gives an estimated 5.75% immediate price fall. One percent of $2,000 is $20, so 5.75 × $20 = $115. That leaves about $1,885 before income, costs and other price changes.
Neither field promises $2,000 on your bill date. Your six-month deadline does not shorten the fund's holdings or switch off rate risk.
Where the estimate breaks
Duration draws a straight line through a curved price/yield relationship. The estimate works best for small yield changes; bigger moves and changing payments can make the error large, especially at high duration.
A fund's single duration also bundles many maturities together. Their yields need not move by the same amount, and credit spreads, the gaps above comparable Treasury yields, can move too. Duration also says nothing about how easily you can sell.
A small duration number can still come with substantial credit risk. For the bill, AGG's duration gives you a price estimate but no scheduled payout. The next choice is between a bond's maturity payment and a fund withdrawal.
In short
- Duration turns a yield change into a rough price-change estimate.
- A duration of six implies about a 6% opposite price move for a one-percentage-point yield move.
- Later maturity usually increases rate sensitivity; larger coupons reduce it when other features are equal.
- Duration is neither a maturity date nor a recovery clock.
- A spending deadline needs a cash plan as well as a price-risk estimate.