Duration

From Reuters Financial Glossary

Synonym: Macauley Duration

A measure of bond price sensivity to changes in prevailing market interest rate.

Alternatively, one can see duration as a measure of the average maturity of a bond's cash flows from both coupons and principal repayment, or how long you have to wait to earn exactly half the expected total return in coupons and principal repayment. A zero coupon bond's duration would be the same as the maturity date because there are no coupons to take into account.

Duration, quoted in years, indicates the average exposure to market risk. Bonds with higher durations face higher risk from changes in interest rates. Also known as Macauley Duration.

Duration and yield to maturity taken together are used to compare bonds with different coupons and maturities.

See also: Coupon, Yield to maturity, Convexity