Kuantile
Bond Duration and DV01: Measure Your Rate Risk with One Number
The most common surprise for bond investors: "I bought a government bond, I thought it was guaranteed — why did its price fall?" The one-word answer is duration. Hold to maturity and (issuer risk aside) your principal is intact; but if you must sell earlier, price moves inversely with market rates — and duration measures how hard.
Duration, intuitively
Macaulay duration is the weighted average waiting time of a bond's cash flows (coupons plus principal), expressed in years. Modified duration is its practical form: roughly how many percent the price falls when yields rise one point (100 basis points). A bond with modified duration 3 loses about 3% when yields go from 40% to 41%.
DV01: the risk in currency terms
Institutional desks speak in DV01: the TRY loss caused by a 1-basis-point rise in yields. Kuantile computes your bond basket's total DV01 and also tabulates the TRY impact of −100, +100, +300 and +500 bp shocks. "What do my bonds lose if the central bank hikes 500 bp?" is answered in seconds.
How coupon and maturity shape duration
- Longer maturity → higher duration: a 10-year bond is many times more rate-sensitive than a 1-year bill.
- Higher coupon → shorter duration: big coupons return your money early. A 2-year Turkish bond with a 35% coupon has a duration near 1.6 years; a zero-coupon bill's duration equals its maturity.
The Turkish context: high yields' hidden comfort
When yields sit around 40%, a given maturity has noticeably shorter duration than in a 4% world (the discounting effect). High-rate environments thus soften price sensitivity somewhat — but remember that 500 bp shocks are also far more likely in such environments. Enter your bond's price, coupon and YTM in Kuantile to see its fair price, duration and shock table together. If the computed fair price deviates sharply from the market price, either your YTM input is off — or the market is telling you something.
Duration is not maturity
They are often confused, but the difference matters. Maturity is when the bond ends; duration is the weighted-average time to receive the cash flows, and it is also the measure of sensitivity to interest rates. A coupon bond's duration is always shorter than its maturity, because the interim coupon payments return part of your money early. The higher the coupon, the shorter the duration — so a high-coupon bond is less sensitive to a rate change than a zero-coupon bond of the same maturity.
DV01: an example
DV01 (dollar value of a basis point) is the effect on a bond's price, in currency terms, of a 1 basis point (0.01%) change in yield. Say you hold a bond with duration 4 and a nominal of 100,000. If rates rise 1 point (100 basis points), the price falls roughly 4%, i.e. ~4,000; DV01 is the 1-basis-point equivalent of that, ~40. This single number instantly answers "if the rate rises a quarter point, what comes out of my pocket?" and lets you compare different bonds in a common risk language.
Convexity: duration's blind spot
Duration assumes the price-yield relationship is a straight line; in reality the relationship is curved. Convexity measures this curvature — and it works in the investor's favor: if rates fall, the price rises a bit more than duration predicts; if they rise, it falls a bit less. For small moves, duration is enough; but when assessing sharp rate shocks you should account for convexity too. You can see your portfolio's interest-rate risk with real crisis windows in the stress test.
Compute your bond's duration →