Key rate duration

What it means

Sensitivity to a change in one segment of the yield curve, holding the other segments fixed.

The exam angle

Needed because real curves twist and steepen. A portfolio can be duration-neutral overall and still lose heavily on a curve reshaping.

Where it appears in the syllabus

• Fixed IncomeCFA Level II · exam weight 10–15% · Term structure dynamics, arbitrage-free valuation, embedded options, CDS.
• Market Risk Measurement & ManagementFRM Part II · exam weight 20% · VaR and ES estimation, backtesting, EVT, GARCH, copulas, FRTB.

See it worked through

• Duration and convexity: how good is the approximation?A ten-year bond repriced at four yield shocks, exactly and with the duration and convexity estimates.

There is also a short video: watch it on YouTube.

Related terms

• ConvexityThe curvature of the price–yield relationship — how duration itself changes as yields move.
• DurationThe sensitivity of a bond’s price to a change in yield, and equivalently the weighted average time to receiving its…
• DV01The change in a position’s value for a one basis point change in yield, expressed in currency.
• Effective durationDuration measured by repricing the bond under small parallel shifts in the benchmark curve, so that changes in cash…
• Bootstrapping (yield curve)Deriving spot rates sequentially from the prices of coupon bonds, using each solved rate to strip the next.
• Callable bondA bond the issuer may redeem early, usually when rates have fallen.