Modified Duration
A refinement of duration that estimates the percentage change in a bond's price for a 1% (100 basis-point) change in its yield. A modified duration of 7 means the bond falls about 7% if yields rise one point and rises about 7% if they fall one point. It is the practical interest-rate-risk number traders use: longer maturities and lower coupons produce a higher modified duration and therefore more price sensitivity. Because it is a first-order (straight-line) estimate, convexity is added to correct it for large yield moves.
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Related terms
10Y Treasury · Altman Z-Score · Asset Sensitivity · Basel III · Bond ETF · Bretton Woods
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