Interest rate risk : the risk that an investment will lose value based on a change in interest rates Interest rates are influenced by many macroeconomic forces: monetary policy, inflation, the strength of the economy When interest rates go up, things get more expensive: debts get more expensive, commodities get more expensive. Interest rate is the cost of money. Higher duration means higher sensitivity the bond has to interest rates. Duration is the "weighted average maturity for all future bond cash flows" It estimates the impact a 1% change in interest rates could have on a bond's price. The bond's coupon : Low coupon bonds tend to have higher durations and are more interest rate sensitive than equivalent higher coupon bonds. Note: lower yields also tend to equate to higher duration The bond's maturity : Long maturity bonds tend to have higher durations and are more sensitive than equivalent short maturity bonds A defensiv...
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