Bond Duration Explained Simply In 5 Minutes

Ryan O'Connell, CFA, FRM explains bond duration simply.

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Chapters:
0:00 - Bond Duration Definition
0:27 - Key Factors Affecting Bond Duration
2:01 - How to Calculate Macaulay Duration

*Disclosure: This is not financial advice and should not be taken as such. The information contained in this video is an opinion. Some of the information could be wrong. This channel is owned and operated by Portfolio Constructs LLC. Some of the links above are affiliate links, meaning, at no additional cost to you, I will earn a commission if you click through and make a purchase.

[RyanOConnellCFA]

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[franciscotomy]

I have watched videos of 30- 60 Mins on Duration and none of those explained the meaning and calculation so easy to understand as yours. Thanks man.

[bovinogadoso]

Finally I was able to understand how duration is calculated. Thanks for the clear and well-organized explanation.

[patrickmoran]

This is the only explanation that I ever understood! It’s bothered me decades that I never understood it. Thanks.

[brunojunqueira]

It's ONE BASIC CONCEPT that no course that I've watched so far could explain. Incredible work that of yours!

[jamiyana]

The best explanation ever! literally summarised 2 weeks of uni lecture into 5 mins. Brilliant work!

[aaronzai]

Quick question, isn't modified duration what tells you how the price of a bond reacts to changes in interest rates while duration is the number of years for a bond to repay the investor?

[BoxOfRain]

I really enjoyed a discussion of bonds that develops it beyond "if interest rates go up, the price of the bond will go down and vice versa". Thank you!

[szymsky]

Great one! Very clear and as efficient as it gets! Thank you:)

[NkosiMoyo-pwqg]

At last!!!someone who actually makes sense..thanks mate!!!

[AlyssaNam]

I like how you breakdown everything, it's a lot easier to understand. ty :)

[sudiptokdey]

Thanks for the explanation. Really liked your approach in making it easy to understand.

[jaymondor]

You are combining two measurements of duration.

Macauley is a measurement of time in which, for example, the appreciation gain of the bond due to a decrease in interest rates, is completely off set by the re-investment risk assumed by YTM. YTM assumes that the coupon payments can be re-invested at the YTM, when rates drop, the coupon payments must be reinvested at a lesser rate, this lowers overall YTM. At the same time, the bond appreciates due to the interest rate decrease - raising YTM. The point in time in which these two values are completely off-setting is Macauley Duration.

Modified duration is the sensitivity change to bond prices with a change in interest rates.

[capr]

Thank you soooo much, finally got that part! Wish you all the best!

[bercellakatos]

Hi! Thanks for the video. One quick question: when we say that 1% increase in the market interest rate implies D % decrease in the bond's price, in terms of the market interest rate, aren't we talking about %-points? It's a bit confusing for me, because you said that a changing market interest rate from 6% to 5% is a 1% decrease but that's not true.
Edit: I've looked it up in the Brealy-Myers book and it says the same, it's percentage-points. I think that's a pretty important detail to underline, many sources on the web fail to include it.

[afihaileywibowo]

I love you, Ryan! Not in weird way, just a big fan of your teaching😊

[guoboding]

Thank you for the explanation, you just solved my problem.

[enocharthur]

Well explained.Thanks so much.

Personally I think they could have used a better word than "Bond duration" for this. it doesn't make much intuitive sense why the word duration will be used for such a sensitivity calculation.

[mahendrasrathore]

Great video and done so easy to comprehend. Thank you

[gradoscapital]

Thank you! This really helped me for my level 1 CFA study