Duration has several definitions. Macaulay duration describes weighted cash-flow timing. Modified duration estimates a bond's percentage price response to a small change in yield. Effective duration is often used when cash flows can change because of embedded options.
Use an approximation carefully
A modified duration of six suggests that a one-percentage-point yield increase would reduce price by roughly 6%, before convexity and other effects. A half-point increase suggests roughly 3%. This is a local estimate, not a guaranteed loss limit.
Separate duration and credit
A bond can have low rate sensitivity and still have high default risk. Conversely, a long government bond can have strong repayment backing and substantial price volatility. A portfolio review should record both risks.
Apply it to a fund
Read which duration measure the fund publishes and the date of the figure. Portfolio turnover and market changes can alter the value. Check whether credit spreads, currency exposure, or mortgage prepayments add other drivers.
For a cash need in a few months, a large duration mismatch can matter more than a modest yield advantage. Match the analysis to the spending date and the ability to tolerate a price decline.
Sources & further reading
Check the linked source for current rules and disclosures. Numerical examples on Stockbok are hypothetical unless explicitly attributed.
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General financial education, not personalized investment or tax advice. Investing involves risk, including loss of principal.