Duration Risk
Definition
The risk that bond prices will decline due to rising interest rates, proportional to the bond's duration.
Explanation
Duration risk is the dominant risk factor in fixed income portfolios. A portfolio with average duration of 7 years will lose approximately 7% if rates rise 100 bps. Long-duration bonds (20+ years) can experience equity-like losses during aggressive rate hiking cycles — the 2022 rate cycle caused the longest Treasury bond ETF (TLT) to fall 44%, worse than many stock portfolios. Managing duration is how bond portfolio managers express their interest rate views.
How Stoquity Uses This
Stoquity incorporates duration risk analysis across its portfolio management platform, providing real-time monitoring and AI-powered insights for every portfolio.