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. Macaulay Duration

    The weighted average term to maturity of the cash flows from ...
  3. Duration

    A measure of the sensitivity of the price (the value of principal) ...
  4. Spot Price

    The current price at which a particular security can be bought ...
  5. Modified Duration

    A formula that expresses the measurable change in the value of ...
  6. Empirical Duration

    The calculation of a bond's duration based on historical data. ...
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. What You Need To Know About Preferred ...
    Trading Strategies

    What You Need To Know About Preferred ...

  4. Understanding The Bond Behemoth That ...
    Mutual Funds & ETFs

    Understanding The Bond Behemoth That ...

comments powered by Disqus
Hot Definitions
  1. Certificate Of Deposit - CD

    A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate ...
  2. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  3. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
  4. Ratio Analysis

    Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items ...
  5. Days Payable Outstanding - DPO

    A company's average payable period. Calculated as: ending accounts payable / (cost of sales/number of days).
  6. Net Sales

    The amount of sales generated by a company after the deduction of returns, allowances for damaged or missing goods and any ...
Trading Center