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. Effective Duration

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

    The income return on an investment. This refers to the interest ...
  4. Interest Rate

    The amount charged, expressed as a percentage of principal, by ...
  5. Macaulay Duration

    The weighted average term to maturity of the cash flows from ...
  6. Yield Curve

    A line that plots the interest rates, at a set point in time, ...
RELATED FAQS
  1. Where can I buy government bonds?

    The type of bond determines where you can purchase it, so you need to decide which type of bond you would like to purchase ...
Related Articles
  1. Bonds & Fixed Income

    The Impact Of An Inverted Yield Curve

    Find out what happens when short-term interest rates exceed long-term rates.
  2. Investing Basics

    Are You Investing With A Purpose?

    We all appreciate having a wide variety of investing choices, but a random collection of investments does not make an investing plan.
  3. Fundamental Analysis

    Is Apple's Stock Over Valued Or Undervalued?

    Despite several drawbacks, the CAPM gives an overview of the level of return that investors should expect for bearing only systematic risk. Applying Apple, we get annual expected return of about ...
  4. Bonds & Fixed Income

    Figuring Out How To Cover Your Liability Bases

    Whenever we talk about the asset-liability approach to portfolio management (ALM), the concepts of immunization and cash flow matching come into play.
  5. Economics

    What Would Happen If Interest Rates Rise?

    This time around, while U.S. long-term yields have rebounded from their January lows, rates have generally been lower than where they ended 2014.
  6. Investing

    Strategies To Position Your Bond Portfolio

    Fixed income investors may not be able to see them all right now, but important trends are stirring on the investment horizon.
  7. Options & Futures

    How to Use Commodity Futures to Hedge

    Both producers and consumers of commodities can use futures to hedge. We explain, using a few examples, how to achieve commodity hedging with futures.
  8. Mutual Funds & ETFs

    4 Tax-Free Muni Bond ETFs to Consider

    Tax free municipal bond ETFs are an excellent way to build wealth slowly. Here are 4 you should consider.
  9. Savings

    How To Make Money With Airbnb: Risks & Rewards

    Airbnb lets you turn your home or spare room into extra cash. Here's how to make money and protect yourself from the risks.
  10. Savings

    How LearnVest Brings Financial Education To All

    LearnVest is one of the most exciting players in the financial technology space. The company's goal: make financial planning accessible.

You May Also Like

Hot Definitions
  1. Sunk Cost

    A cost that has already been incurred and thus cannot be recovered. A sunk cost differs from other, future costs that a business ...
  2. Technical Skills

    1. The knowledge and abilities needed to accomplish mathematical, engineering, scientific or computer-related duties, as ...
  3. Prepaid Expense

    A type of asset that arises on a balance sheet as a result of business making payments for goods and services to be received ...
  4. Gordon Growth Model

    A model for determining the intrinsic value of a stock, based on a future series of dividends that grow at a constant rate. ...
  5. Cost Accounting

    A type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step ...
  6. Law Of Supply

    A microeconomic law stating that, all other factors being equal, as the price of a good or service increases, the quantity ...
Trading Center