What is a bond duration?

Duration can also measure the sensitivity of a bond’s or fixed income portfolio’s price to changes in interest rates. A bond’s duration is easily confused with its term or time to maturity because certain types of duration measurements are also calculated in years.

Why is duration important in a bond portfolio?

Duration helps investors grasp price fluctuations that are due to interest-rate movements. Essentially, bond prices have an inverse relationship with interest rates. When Morningstar analysts refer to duration in the context of an overall bond portfolio, they are most likely referring to average effective duration.

How long should a bond fund last?

Also, a fund with an average effective duration of 10.0 years may not be twice as sensitive to interest-rate changes as one with 5.0 years. For more on this, see "Bond Fund Duration: An Art, Not a Science" by Morningstar senior analyst Eric Jacobson.