Key Rate Duration

AAA

DEFINITION of 'Key Rate Duration'

Holding all other maturities constant, this measures the sensitivity of a security or the value of a portfolio to a 1% change in yield for a given maturity.

The calculation is as follows:

Key Rate Duration



Where:
P- = Security's price after a 1% decrease in yield
P+ = Security's price after a 1% increase in yield
P0 = Security's original price

INVESTOPEDIA EXPLAINS 'Key Rate Duration'

There are 11 maturities along the Treasury spot rate curve, and a key rate duration is calculated for each. The sum of the key rate durations along a portfolio yield curve is equal to the effective duration of the portfolio.

RELATED TERMS
  1. Yield To Maturity (YTM)

    The rate of return anticipated on a bond if held until the maturity ...
  2. Empirical Duration

    The calculation of a bond's duration based on historical data. ...
  3. Effective Duration

    A duration calculation for bonds with embedded options. Effective ...
  4. Yield

    The income return on an investment. This refers to the interest ...
  5. Yield Curve

    A line that plots the interest rates, at a set point in time, ...
  6. Interest Rate

    The amount charged, expressed as a percentage of principal, by ...
Related Articles
  1. The Impact Of An Inverted Yield Curve
    Bonds & Fixed Income

    The Impact Of An Inverted Yield Curve

  2. Where can I buy government bonds?
    Investing

    Where can I buy government bonds?

  3. Why should I keep records on my tax-exempt ...
    Taxes

    Why should I keep records on my tax-exempt ...

  4. What determines the price of a bond ...
    Bonds & Fixed Income

    What determines the price of a bond ...

Hot Definitions
  1. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
  2. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  3. Leading Indicator

    A measurable economic factor that changes before the economy starts to follow a particular pattern or trend. Leading indicators ...
  4. Wage-Price Spiral

    A macroeconomic theory to explain the cause-and-effect relationship between rising wages and rising prices, or inflation. ...
  5. Accelerated Depreciation

    Any method of depreciation used for accounting or income tax purposes that allows greater deductions in the earlier years ...
  6. Call Risk

    The risk, faced by a holder of a callable bond, that a bond issuer will take advantage of the callable bond feature and redeem ...
Trading Center