Government bonds are often called safe, yet in 2022 long-dated Treasuries fell more than 30%. The reason is duration, the single most important number for understanding how much a bond's price moves when interest rates change. Here is how to read it.
Why bond prices fall when rates rise
A bond pays a fixed coupon. When market rates rise, newly issued bonds pay more, so an older bond paying less must get cheaper for anyone to buy it. Price and yield move in opposite directions, and that is the root of interest-rate risk. For the mechanics of that seesaw, see the guide on bond prices and yields.
For the same rise in rates, a longer-maturity bond loses more. That extra sensitivity is its duration.
What duration measures
Duration is, roughly, how many percent a bond's price moves for a 1 percentage-point change in rates. A bond with a duration of 8 falls about 8% if rates rise 1%, and rises about 8% if they fall 1%. Longer maturities and lower coupons push duration higher.
💡 Tip: A quick rule of thumb is price change ≈ −duration × change in yield. Duration 10 and rates up 0.5% means roughly a 5% price drop.
| Maturity | Approx. duration | Price if rates rise 1% |
|---|---|---|
| 2-year | ~1.9 | about −2% |
| 10-year | ~8.5 | about −8% |
| 30-year | ~19 | about −19% |
Figures are rough and depend on the coupon, but the shape holds: the longer the bond, the bigger the swing.
Short versus long bonds
Longer bonds usually pay a bit more yield to compensate for that larger price risk. When you expect rates to fall, long duration is where the gains are; when you expect rates to rise, short duration protects your principal.
⚠️ Caution: A long-dated government bond is not automatically safe. Its credit risk is low, but its interest-rate risk is high, so it can drop sharply in a rising-rate year.
Managing duration in a portfolio
If you think rates are heading up, you can shorten duration by favoring shorter bonds or cash-like instruments. A bond ladder, holding bonds that mature in staggered years, spreads the risk and lets you reinvest as each rung matures. Matching duration to when you actually need the money is the core idea.
What to watch
Duration risk lives and dies with the rate outlook, so track the US 10-year yield and the Fed's policy path. The Global Market Dashboard shows Treasury yields and the yield curve on one screen, a fast way to see whether rate pressure is building.
Further reading
For a thorough, plain-language treatment, Annette Thau's The Bond Book is a well-regarded reference on how bonds and duration work in practice.
This article is for informational purposes only and is not investment advice.