We use privacy-friendly analytics to learn which calculators help, and nothing loads until you agree. Read our privacy policy.
Investment
Duration is rate-sensitivity: a 6-year duration means roughly minus 6% for each 1% rates rise. Why bond ETFs never mature, and how yield cushions losses.
By FreeCalculators Editorial · Published 2026-08-15 · Updated 2026-08-23 · 5 min read · 1,018 words
Duration measures how violently a bond holding reacts to interest-rate changes - expressed in years and read as a simple rule: price moves roughly opposite the rate change multiplied by duration. A fund with six-year duration loses about six percent of value if rates rise one percentage point, gains similarly when they fall. Because individual bonds mature but bond ETFs never do, duration becomes THE number explaining why fixed-income funds drop during rate spikes and recover afterward. This guide makes the mechanics concrete enough to choose bond exposure deliberately.
Price change ~= -(duration) x (rate change)
Fund with 6-year duration: Rates +1% -> price ~ -6% Rates +2% -> price ~ -12% Rates -1% -> price ~ +6% Fund with 3-year duration: half those swings Fund with 15-year duration: more than double (Approximation best for modest changes; convexity bends reality kindly) Same math explains 2022's bond-fund losses exactly
Why does the rule exist? Existing bonds paying old coupons become less attractive as new issues pay more, so their prices adjust downward until yields match. The longer your stream of payments extends into the future, the more repricing each rate move causes - hence duration doubling as both a time measure and a sensitivity measure.
| Category | Typical duration band | Behavior character |
|---|---|---|
| Ultra-short / cash-like | ~0.5-2 years | Barely moves; yield does the work |
| Short-term | ~2-3.5 years | Mild sensitivity, quick recovery |
| Intermediate | ~5-7 years | The classic core; meaningful swings |
| Long-term | ~15-25 years | Equity-like drawdowns in rate shocks |
Hold an individual five-year bond to maturity and principal returns at par regardless of interim price swings - duration pain is temporary by construction. Bond ETFs instead hold perpetually rolling portfolios: maturing bonds get replaced with new issues keeping average duration constant. There is no maturity date delivering par. The flip side: the fund continuously reinvests at CURRENT rates, so after a rate spike its income stream climbs toward new levels - the mechanism through which temporary price losses convert into permanently higher expected returns for holders who stay.
The cushion arithmetic (illustrative)
Fund: 6-year duration, 4.5% yield to start Rates jump +1% instantly -> price ~ -6% Year-one total return approx: 4.5% - 6% = ~ -1.5% But portfolio now reinvests coupons at ~5.5% Break-even horizon roughly equals: duration - starting yield ~ 6 - 4.5 = 1.5 years of patience Higher starting yields shorten every recovery
Individual bond ladders guarantee specific dollars arriving on specific dates - superior when liabilities are dated precisely, tedious when they are not. Bond ETFs trade that date-certain certainty for instant diversification, daily liquidity, and zero administration, accepting rolling-maturity uncertainty in exchange. Most retirement portfolios fit ETFs fine; house down payments due next spring fit ladders better. Deeper comparison lives in bond laddering guide, with yield mechanics in bonds and yields explained.
Comprehensive Guide
Read our investing guide for stocks, bonds, ETFs, and portfolio strategy.
Try the calculatorWas this page helpful?
How this guide was created
This guide was written and reviewed by FreeCalculators Editorial, drawing on published formulas, official government sources, and real calculator outputs from our 4 calculators in this category. Every claim is sourced; every formula is auditable. Read our review policy.