Esponel (es)
Türkçe (tr)
Russian (ru)
한국인 (kr)
Italiano (it)
हिंदी (in)
عربي (ar)
Français (fr)
Deutsch (de)
日本 (jp)
中国人 (cn)
CandleFocus Glossary Editor
Key rate duration is an important tool for understanding the sensitivity of a fixed income portfolio to changes in interest rates. It can help investors identify potential trading opportunities and can also aid portfolio managers in determining the optimal hedging strategies and the necessary cash reserves for an accurate estimation of market risk.
Key Rate Duration is a measure of the percentage change in price of a bond taking into account the impact of an interest rate change on the yield curve. It is calculated by taking the weighted average of the individual durations within a bond portfolio, using the changing points of interest rate yields (the key rate) as the weights.
For example, the effect of a 1% change in yields on each maturity within a bond portfolio can be estimated. Using key rate duration, the shift in the bond’s price can then be calculated. Thus, key rate duration not only measures how much a bond's price will fluctuate with respect to yield changes — it also assesses the price risk generated when the yield curve shifts.
Key rate duration can be used to assess the potential impacts of an interest rate change on the value of a bond portfolio, taking into account the parallel or non-parallel movements of a yield curve. The duration for any yield curve point (such as the 1- year, 5-year, and 10-year points on the yield curve) can be calculated. This can then be compared to the weighted average of the durations for all of the bonds in a portfolio to determine the overall portfolio duration.
It is important to note that key rate duration does not take into account the impact of changes in both interest rates and the term structure (also known as the yield curve). To assess the price risk of a bond portfolio and to fully understand its consequences accurately, both factors must be taken into consideration.
In summary, the key rate duration tool helps investors and portfolio managers understand the price risk of holding a fixed income security or bond portfolio, taking into account the changes on the yield curve. It is important to be aware of the limitations of key rate duration, such as, its inability to measure the full impact of all factors, including changes in both interest rates and the term structure. Nevertheless, key rate duration is a useful tool to help identify investment opportunities, establish hedging strategies and monitor potential threats.
Key Rate Duration is a measure of the percentage change in price of a bond taking into account the impact of an interest rate change on the yield curve. It is calculated by taking the weighted average of the individual durations within a bond portfolio, using the changing points of interest rate yields (the key rate) as the weights.
For example, the effect of a 1% change in yields on each maturity within a bond portfolio can be estimated. Using key rate duration, the shift in the bond’s price can then be calculated. Thus, key rate duration not only measures how much a bond's price will fluctuate with respect to yield changes — it also assesses the price risk generated when the yield curve shifts.
Key rate duration can be used to assess the potential impacts of an interest rate change on the value of a bond portfolio, taking into account the parallel or non-parallel movements of a yield curve. The duration for any yield curve point (such as the 1- year, 5-year, and 10-year points on the yield curve) can be calculated. This can then be compared to the weighted average of the durations for all of the bonds in a portfolio to determine the overall portfolio duration.
It is important to note that key rate duration does not take into account the impact of changes in both interest rates and the term structure (also known as the yield curve). To assess the price risk of a bond portfolio and to fully understand its consequences accurately, both factors must be taken into consideration.
In summary, the key rate duration tool helps investors and portfolio managers understand the price risk of holding a fixed income security or bond portfolio, taking into account the changes on the yield curve. It is important to be aware of the limitations of key rate duration, such as, its inability to measure the full impact of all factors, including changes in both interest rates and the term structure. Nevertheless, key rate duration is a useful tool to help identify investment opportunities, establish hedging strategies and monitor potential threats.