Bond duration is a measure of how much bond prices are likely to fluctuate if and when interest rates change. Bond duration, in more technical terms, is a measure of interest rate risk. Understanding bond duration can assist investors in determining how bonds fit into a larger investment portfolio.
Understanding duration is especially important for those who intend to sell their bonds before maturity. If you buy a 10-year bond with a 4% yield for $1,000, you will still receive $40 per year and will have received your $1,000 principal back after 10 years, regardless of what happens with interest rates. If you sell that bond before maturity (or if you invest in a fund that buys and sells bonds while you own it), the price of your bonds will be affected by changes in interest rates.

Bond duration is a measure of a bond's sensitivity to interest rate changes. It represents the weighted average time it takes for an investor to recoup their investment through the bond's future cash flows. Expressed in years, duration helps assess the bond's price volatility in response to interest rate fluctuations. A higher duration indicates greater sensitivity, meaning the bond's price is more likely to change in response to interest rate shifts. Understanding bond duration is crucial for investors seeking to manage risk and make informed decisions in fixed-income portfolios.