Duration

Definition

Definition Duration estimates how much the price of a bond or rate-sensitive asset will change when interest rates move. Higher duration generally means higher sensitivity to rate changes. Duration is a core tool for managing interest rate exposure in fixed income and rate-sensitive credit strategies. Allocator Context Allocators use duration to control portfolio rate risk and understand how strategies will behave in rate shock scenarios. Duration interacts with credit spreads: a strategy can have modest duration but still face meaningful loss risk from spread widening or default cycles. Decision Authority Rate risk limits and duration ranges may be embedded in mandates and policy constraints. Significant duration shifts can require oversight actions, especially for portfolios that rely on fixed income for stability. Why It Matters for Fundraising Credit and fixed income managers should explain duration clearly, including how duration is managed, how hedges are used (if at all), and what rate scenarios are most relevant to the strategy. Key Takeaways Measures rate sensitivity Central to risk budgeting in fixed income sleeves Must be considered alongside spread and default risk Clear duration communication improves allocator sizing decisions