Glossary: Yield and Duration Metrics
Glossary: Yield and Duration Metrics
This glossary defines the essential yield, duration, and convexity terms every fixed income investor needs to know. Use it as a quick reference when analyzing bonds, evaluating funds, or interpreting market commentary.
Barbell Strategy - A portfolio structure concentrating holdings in short-term and long-term bonds while avoiding intermediate maturities. Investors use this approach to capture higher convexity and express views on yield curve shape changes.
Breakeven Inflation - The difference between a nominal Treasury yield and the corresponding TIPS real yield at the same maturity. As of December 2025, the 10-year breakeven stands at 2.22%, reflecting market expectations for average inflation over that period.
Bullet Strategy - A portfolio structure concentrating holdings around a single target maturity. Investors favor this approach when they expect parallel yield curve shifts and want to minimize curve reshaping risk.
Convexity - A measure of the curvature in the price-yield relationship, representing the second derivative of bond price with respect to yield. Short-term bonds exhibit low convexity (below 20), while long-term bonds can reach 80-200 or higher.
Current Yield - The annual coupon payment divided by a bond's current market price. Investors should note this metric ignores capital gains or losses and can differ from yield to maturity by 100 bps or more for discount or premium bonds.
Dollar Duration - See DV01. Some practitioners use this term interchangeably with DV01, though technically dollar duration refers to price change per 1% yield move rather than per basis point.
DV01 (Dollar Value of 01) - The dollar change in a bond or portfolio's value for a one basis point (0.01%) change in yield. According to CME Group data, typical DV01 values per million dollars par value range from $185 for 2-year Treasury notes to $2,131 for 30-year Treasury bonds.
Effective Duration - A duration measure for bonds with embedded options that uses model-derived price changes rather than yield-based formulas. Investors apply effective duration to callable bonds, putable bonds, and mortgage-backed securities where cash flows depend on interest rate paths.
Flattener Trade - A position structured to profit when the spread between long-term and short-term yields narrows. Investors implement flatteners by going long duration at the long end and short duration at the short end.
Forward Rate - The interest rate for a future period implied by today's spot curve. Investors derive forward rates using the no-arbitrage relationship between spot rates of different maturities. Source: Federal Reserve Board yield curve methodology.
Immunization - A strategy that matches asset duration to liability duration to neutralize the impact of interest rate changes on funded status. According to CFA Institute (2026), a 100% hedging ratio implies complete removal of interest rate risk.
Key Rate Duration - The sensitivity of a bond's price to a rate change at a specific maturity point on the yield curve, such as the 2-year, 5-year, or 10-year tenor. Key rate durations sum to effective duration, capturing non-parallel shift risk that overall duration misses.
Ladder Strategy - A portfolio structure with equal allocations across a range of maturities. Investors use ladders to provide consistent reinvestment opportunities and diversified exposure to yield curve movements.
Macaulay Duration - The weighted average time to receive a bond's cash flows, measured in years, where weights are the present values of each payment. For a 5-year bond with 5% coupon priced at $1,100, Macaulay duration equals approximately 4.57 years.
Modified Duration - A measure of price sensitivity expressing the percentage price change for a 1% (100 bps) change in yield. The Bloomberg US Aggregate Index currently shows modified duration of 6.0 years versus a long-term average of 4.97 years (Hartford Funds, 2025).
Negative Convexity - A price-yield relationship where price rises less than duration predicts when yields fall. MBS exhibit this characteristic because falling rates trigger refinancing, capping price appreciation.
OAS (Option-Adjusted Spread) - The spread over a benchmark curve after removing the value of any embedded options. Investors use OAS to compare callable bonds, MBS, and other optionable securities on an apples-to-apples basis.
Par Rate - The coupon rate that would price a bond at exactly par value given the current spot curve. Par yield curves derive from closing market bid prices at approximately 3:30 PM each business day, per Federal Reserve methodology.
Positive Convexity - A price-yield relationship where price rises more than duration predicts when yields fall and falls less than predicted when yields rise. Option-free fixed-rate bonds always exhibit positive convexity.
Spot Rate - The yield on a zero-coupon bond of a given maturity, used to discount individual cash flows. Investors derive spot rates from the par curve through bootstrapping, a forward substitution method (Analyst Prep, 2024).
Steepener Trade - A position structured to profit when the spread between long-term and short-term yields widens. The 2s10s spread currently stands at +8 bps, well below the long-term average of +80 bps since 1977.
Yield to Call - The return investors would earn if a callable bond is redeemed at its first call date rather than held to maturity. Investors focus on yield to call when a bond trades above par, making early redemption likely.
Yield to Maturity (YTM) - The total return anticipated if a bond is held to maturity, assuming all coupon payments are reinvested at the same rate. As of December 2025, the 10-year Treasury yields 3.67% while the 30-year yields 4.80%.
Yield to Worst - The lowest yield among yield to maturity and all possible yield to call calculations. Stanford GSB research (2023) found retail investors chasing highest yields are more prone to losses from early calls and rating downgrades.
Related articles cover these concepts in depth: the yield measures article explains nominal, current, and YTM calculations; the Macaulay duration walkthrough provides step-by-step computation; the convexity article demonstrates why second-order effects matter for large rate moves; and the DV01 basics article covers practical applications for hedging and risk management.
Last updated: December 2025. Terms reflect current market conventions and CFA Institute curriculum standards.