Duration and the Yield Curve
A single number that estimates how much a bond or bond fund moves when rates change, and a chart that shows how rates differ across maturities.
The short version
Duration estimates how sensitive a bond's price is to interest rate changes: a duration of 6 means roughly a 6% price change for each one-point move in rates, in the opposite direction. Bond funds publish it, which makes it one of the most useful numbers for comparing them. The yield curve plots interest rates across maturities. It usually slopes upward. When it inverts, with short-term rates above long-term ones, it's watched closely as a possible warning sign for the economy.
By the end of this lesson, you'll be able to
- Use duration to estimate how much a bond or bond fund might move when rates change
- Describe normal, flat, and inverted yield curves
- Explain why an inverted yield curve gets attention, and its limits as a signal
Why this matters
This lesson is optional. Why Bond Prices and Yields Move in Opposite Directions showed that longer bonds react more to rate changes. Duration turns that idea into a number you can use, and it's printed on almost every bond fund's fact sheet. The yield curve is the bond market's most-watched chart, and it comes up constantly in economic news.
Duration
Although it's stated in years, Duration. A measure of how sensitive a bond's price is to interest rate changes. A duration of 6 means a price change of roughly 6% for each 1-point move in rates. More on this term is really a measure of sensitivity: how much a bond's price is likely to change when interest rates move. The higher the duration, the more sensitive the bond. As a rule of thumb, for every one-percentage-point change in interest rates, a bond's price moves in the opposite direction by roughly its duration, as a percentage. A bond with a duration of 10 would be expected to fall about 10% if rates rose one point, and a bond fund with a duration of 2 about 2%.1
| Bond fund | Duration | If rates rise 1 point | If rates fall 1 point |
|---|---|---|---|
| Short-term fund | 2 years | About −2% | About +2% |
| Intermediate-term fund | 6 years | About −6% | About +6% |
| Long-term fund | 16 years | About −16% | About +16% |
The funds are fictional. Duration is an estimate that works best for small rate changes. For example, the 10-year, 3% bond from the earlier lesson has a duration of about 8.5, so the rule of thumb predicts an 8.5% fall if rates rise from 3% to 4%. The actual fall works out to about 8.1%. The gap comes from a property called convexity, covered in the Fixed Income depth track.
Duration depends mainly on how long until a bond's payments arrive. Longer maturities mean higher duration. Higher coupons lower it slightly, because more of the money comes back sooner. A zero-coupon bond, which pays everything at the end, has a duration equal to its maturity.
The rest of this lesson is for members
Still to come in this lesson: The yield curve, Why an inversion gets attention, the key takeaways, and 2 quiz questions with explanations.
Membership opens every lesson in the curriculum, the capstone projects, the interactive tools, and the members-only channels in the Hyperion Entities Discord. The first lesson of every module stays free.
Go deeper
- Duration and ConvexityFixed Income in Depth (depth track)
- The Yield Curve in DepthFixed Income in Depth (depth track)
- Business Cycles and RecessionsPart 6: Strategy, Behavior, Accounts, and Taxes
Notes and sources
- FINRA. Brush Up on Bonds: Interest Rate Changes and Duration. Checked 2026-10-12. Back to text
- Federal Reserve Bank of New York. The Yield Curve as a Leading Indicator. Checked 2026-09-30.