Question on duration vs maturity

Discussion of the Bond portion of the Permanent Portfolio

Moderator: Global Moderator

Post Reply
Jeffreyalan
Full Member
Full Member
Posts: 83
Joined: Sat Sep 10, 2016 1:50 pm

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
User avatar
ochotona
Executive Member
Executive Member
Posts: 3353
Joined: Fri Jan 30, 2015 5:54 am

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.
boglerdude
Executive Member
Executive Member
Posts: 1313
Joined: Wed Aug 10, 2016 1:40 am
Contact:

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
User avatar
Kriegsspiel
Executive Member
Executive Member
Posts: 4052
Joined: Sun Sep 16, 2012 5:28 pm

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%
You there, Ephialtes. May you live forever.
User avatar
ochotona
Executive Member
Executive Member
Posts: 3353
Joined: Fri Jan 30, 2015 5:54 am

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.
Post Reply