Portfolio duration

Duration measures interest-rate sensitivity in years. A portfolio duration of 5 means its value falls by about 5% if yields rise by one percentage point. Portfolio duration is the market-value-weighted average of the holdings’ durations.

Policies set it absolutely, such as “no longer than six years”, or against a benchmark, such as “within one year of the benchmark”. They should say which duration is meant, such as modified, effective or spread duration, and from which source. Cash and some funds may be exempt.

Acclimetry’s duration and maturity bands compute the value-weighted average of an approved field, in years. Example: 300 at two years and 700 at seven years average 5.5 years, inside a six-year cap. If one bond’s duration is missing, the average proves nothing and the result is not evaluated.