Disclaimer
This page is intended for US prospects, clients and investors only and includes information about the capabilities, staffing and history of Robeco Institutional Asset Management US, Inc. (RIAM US) and its participating affiliates, which may include information on strategies not available in the US. US Securities and Exchange Commission (SEC) regulations are applicable only to clients, prospects and investors of RIAM US. Robeco BV, Robeco HK and Robeco SH are considered a “participating affiliate” of RIAM US and some of their employees are “associated persons” of RIAM US as per relevant SEC no-action guidance. Employees identified as access persons or associated persons of RIAM US perform activities directly or indirectly related to the investment advisory services provided by RIAM US. In those situations, these individuals are deemed to be acting on behalf of RIAM, a US SEC registered investment adviser. RIAM US’s SEC registration should not be viewed as an endorsement or approval of RIAM US by the SEC. RIAM US maintains its offices at 230 Park Avenue, New York, NY 10169.
By clicking I Agree, I confirm that I have read and understood the above.
Fixed income
Bond duration
Duration refers to the price sensitivity of a bond, or a portfolio of bonds, to a change in interest rates. It is measured in years. The higher the duration, the greater the responsiveness of the bond price – or the value of a bond portfolio – to a change in interest rates. There is an inverse relationship between bond prices and interest rates. Expressed differently: the higher the duration of an asset or a portfolio of assets, the higher its interest rate risk.
Defining sensitivity
Typically, for every year of modified duration, a 100 basis point increase (decrease) in interest rates would result in the price of a bond declining (increasing) by about 1%. Thus, for a bond with a duration of 7 years, if interest rates were to increase by 100 basis points, the price of the bond would drop by 7% (that is, 7 years multiplied by 100 basis points).
Duration is affected by the size and timing of future payments on a bond. For example, the longer the maturity of the bond or the bond portfolio, the higher the duration; and, the higher the coupon, the lower the duration.
A measure of risk
Duration is an important measure of the interest rate risk of a bond or a portfolio of bonds, as it reflects the likely price volatility related to changes in interest rates. The higher the duration of an asset or a portfolio, the higher the interest rate risk and the higher the likely price volatility.
