Editor’s note: This is general educational information about duration and interest rate risk in bonds. It is not investment advice. It relies on the SEC investor bulletin, Treasury security descriptions and Federal Reserve rate data listed at the end.
Analysis: duration is the only part of a bond quote that is about the future
A bond quote gives a coupon, a maturity and a yield. All three describe the contract. None of them describes what the holder is exposed to, and that is what duration adds.
The point is easiest to see in the gap between the ten-year and thirty-year Treasury yields on the September 1, 2026 data, 4.79% against 5.27%. The extra yield on the long bond is often read as compensation for tying money up for longer. That is not quite what it is. The thirty-year bond does not simply lock money away, since it can be sold at any time. What it does is deliver a price that moves several times as much per percentage point of yield as the ten-year’s does, because its cash flows are weighted decades out. The additional yield is payment for accepting that sensitivity, not for the wait.
The same logic reframes the coupon. A high-coupon bond and a low-coupon bond with the same maturity are not variants of one instrument. The high-coupon bond returns more of its value early, has a shorter duration and moves less when yields shift. Comparing them on yield alone compares two different risk exposures as though they were the same.
Two limits deserve stating. Duration measures sensitivity to a parallel shift in yields, and the September 2026 curve is not flat, so a move concentrated at the short end and a move concentrated at the long end will not affect a portfolio in the way a single duration number implies. And duration says nothing about credit. A corporate bond and a Treasury with identical duration respond identically to a rate move and not at all identically to a change in the issuer’s prospects.
What a careful reader would take from the STRIPS decomposition is that every bond is already a portfolio of dated claims, and duration is just the center of gravity of that portfolio. Once the question is framed that way, the coupon, the maturity and the current yield stop being three separate facts and become three inputs to one number, and that number, rather than the yield, is what determines how much the position moves tomorrow.
What the documents say
Yield tells you what a bond pays if nothing changes. Duration tells you what happens when something does. The two answer different questions, and a holder who knows only the first has no way to size the risk in a position.
The confusion starts with the word. Duration sounds like a length of time, and it is measured in years, but it is not the same thing as maturity. It is the weighted average time at which a bond’s cash flows arrive, and because it is weighted by the present value of those flows, it moves with the coupon, the yield and the passage of time as well as with the maturity date.
Start with the cash flows, not the maturity date
The clearest way to see what duration measures is to take a bond apart. The Treasury’s own STRIPS program does exactly that. Fixed-principal notes, bonds and TIPS may be stripped, and when they are, the principal payment and each interest payment become separate securities, each a zero-coupon security that matures separately and has only one payment.
A bond with 10 years remaining to maturity consists of a single principal payment due at maturity and twenty interest payments, one every six months over the next 10 years. Stripped, that one security becomes 21 separate new securities with their own CUSIPs, in par value multiples of $100.
That decomposition is the definition of duration made physical. The ten-year bond is a portfolio of 21 zero-coupon claims with maturities running from six months to ten years. Its duration is the present-value-weighted average of those 21 maturities, which is necessarily shorter than ten years because most of the pieces mature earlier. Only the stripped principal payment, the one zero that sits at the end, has a duration equal to its maturity.
This immediately explains the two rules the SEC’s investor bulletin states without deriving them. Bonds offering lower coupon rates generally have higher interest rate risk than similar bonds offering higher coupons, because a smaller share of the value arrives early. And bonds with longer maturities generally have higher interest rate risk than similar shorter bonds, because the weighted average of the arrival times is pushed out.
What the sensitivity looks like in numbers
The bulletin works a Treasury example with real arithmetic. A bond with a 3% semi-annual coupon, $1,000 face value and 10 years to maturity is priced at $1,000 when the market rate is 3%. A year later, with nine years remaining, if market rates have fallen to 2% the price is $1,082 and the yield to maturity is 2%. If instead market rates have risen to 4%, the price is $925 and the yield to maturity is 4%.
Two things are worth extracting from that. The first is that a one percentage point change in market rates moved the price of a nine-year bond by tens of dollars per $1,000 of face value. That is the practical content of duration, which is quoted in years but reads as a percentage price change per percentage point of yield. The second is the asymmetry. The gain from the rate fall was larger than the loss from the equivalent rate rise. That curvature is convexity, the second-order effect duration alone does not capture, and it is why duration is an approximation that degrades as the rate move gets larger.
The bulletin also disposes of a common misreading. The seesaw between rates and prices applies to every bond including those guaranteed by the US government, which guarantees timely interest and full principal at maturity but does not guarantee the market price of the bond if it is sold before then.
Where the duration sits across the current curve
Duration matters most where the curve is steep and the maturities are long. The Federal Reserve’s H.15 release dated September 2, 2026 shows Treasury constant maturity yields for September 1, 2026 of 4.18% at one year, 4.39% at two years, 4.55% at five years, 4.79% at ten years and 5.27% at thirty years, against an effective federal funds rate of 3.63%.
The inflation-indexed series on the same release records real yields of 2.18% at five years, 2.44% at ten years, 2.78% at twenty years and 2.98% at thirty years, with the inflation-indexed long-term average at 2.95%.
The Treasury issues notes for terms of 2, 3, 5, 7 or 10 years and bonds for terms of either 20 or 30 years, all paying a fixed rate of interest every six months until they mature. The instrument set is therefore a duration ladder by construction, and the choice of maturity is a choice of interest rate exposure before it is a choice of yield.
