Lesson 6 of 6 · All lessons in this module
- From Macaulay duration to modified durationVideo lesson
- Approximate modified durationVideo lesson
- Money duration and the price value of a basis pointVideo lesson
- Integrated cases: duration of a bond bought mid-period
- Duration of zero-coupon, perpetual and floating-rate bonds
- How maturity, coupon and yield drive duration
Lesson 6 of 6 · 13 min
How maturity, coupon and yield drive duration
All else equal, a longer maturity, a lower coupon or a lower yield means a higher duration and more interest rate risk, with one curious exception for long deep-discount bonds.
In short
- Maturity: longer → usually higher duration (always for par and premium bonds).
- Coupon: lower coupon → higher duration. A zero has the highest duration for its maturity.
- Yield: lower YTM → higher duration.
- Time within a coupon period: as t/T rises, duration falls smoothly, then jumps up after each coupon (a saw-tooth).
- Par and premium bonds approach (1 + r)/r from below as maturity grows. Long discount bonds can overshoot it, peak, then fall back.
- Duration is not constant: it shrinks as a bond ages.
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