Meaning and methodology
FINRA’s educational overview explains duration through a bond’s sensitivity to changes in interest rates. The measure helps compare interest-rate risk, but its meaning depends on the chosen method, cash flows and instrument features. Before using it, identify which duration the data source reports and which assumptions underlie the calculation. It is not a forecast of the future price or a single measure of every risk.
Different coupon structures
If two ordinary bonds have the same maturity date but different coupons, their durations may differ. Earlier substantial payments change the distribution of cash flows. Therefore, the same remaining life does not imply the same price response to a change in yields.
Limits of the indicator
Duration is not the same as maturity and does not measure the probability of default. With large yield changes, an approximate estimate can become less accurate; compare several scenarios. For an instrument with early redemption, floating payments or embedded optionality, the methodology is especially important. Duration is useful for comparing interest-rate risk but does not replace reading the issue terms.