Question on duration vs maturity

Discussion of the Bond portion of the Permanent Portfolio

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Jeffreyalan
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Question on duration vs maturity

Post by Jeffreyalan » Mon Jan 21, 2019 6:19 pm

Can anyone educate me on what I should be looking at for a bond ETF when it comes to maturity vs duration? For example, I want to target the 10 year Treasury in an ETF. IEF has a duration of 7.39 and an avg maturity of 8.49. TLH has a duration of 10.84 and an avg maturity of 15.02.

Which of those numbers should I be focused on when trying to target a specific maturity range?

Thanks! ;D
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ochotona
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Re: Question on duration vs maturity

Post by ochotona » Mon Jan 21, 2019 6:23 pm

My understanding is that for portfolio risk, duration matters. Maturity is a calendar date, but because not all bonds are created equal (default risk, call risk), duration is related to but not equal to maturity. Only for Treasuries are they the same.
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Re: Question on duration vs maturity

Post by boglerdude » Tue Jan 22, 2019 12:22 am

Why not barbell, put long and short in your bond allocation
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Kriegsspiel
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Re: Question on duration vs maturity

Post by Kriegsspiel » Tue Jan 22, 2019 6:46 am

Duration tells you how much the price of the bond/fund will go up (or down) if the interest rate falls (goes up) 1%.

So if you have a bond fund with a duration of 10, and if the interest rate goes up 1%, then your bond/fund will go down in value 10%
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ochotona
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Re: Question on duration vs maturity

Post by ochotona » Tue Jan 22, 2019 10:39 am

They actually back-calculate the duration of a bond fund by observing market price change as a function of interest rate change. It's empirical, not bottoms up based on what they own. Complicated stuff.
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