×
For more information, get in touch with our team:
+44 7918 53 08 73
Hint mode is switched on Switch off
Glossary

Macaulay duration

Category — Analytical Metrics
Macaulay’s duration (D) is the average tenor of payment flow, and the estimate depends on the compounding period used in calculations.

Duration is usually measured in years on international markets, but the Russian and Ukrainian markets mostly measure in days.

Duration not only shows the average tenor of payment flow on bonds, but it is also a good measure of price sensitivity to interest rate fluctuations.

Duration properties:
1. The longer the duration, the more sensitive the price becomes to interest rate fluctuations. A three-year bond means that the given bond has the same price sensitivity to interest rate fluctuations as a three-year zero-coupon bond.
2. Duration is always less than or equal to the period until bond redemption. The duration of a zero-coupon bond is equal to its period until redemption and does not depend on yield change.
3. Under otherwise equal conditions, the higher the coupon rate, the shorter the duration, and vice versa.
4. Under otherwise equal conditions, if yield to maturity grows, duration decreases, and vice versa.
5. Under otherwise equal conditions, the longer until maturity, the longer the duration. However, an increase in the tenor of a bond does not always correlate with an increase in its duration.
6. Under otherwise equal conditions, the higher the coupon payment frequency, the shorter the duration, and vice versa.

More information about duration calculation and examples of calculations can be found at Bond Calculator Guide.
Terms from the same category