Explore the inverse relationship between bond prices and yields. Understand duration, convexity, and interest rate risk.
Configure bond characteristics
Bond Price
₹1,000.00
Trading at par
Macaulay Duration
7.66 yrs
Modified Duration
7.44
Convexity
68.77
The inverse relationship between bond price and yield
Dashed vertical line shows current yield (6%), horizontal line shows par value (₹1,000.00)
Comparing actual price change vs. duration/convexity approximations
If yield +1%
-7.11%
If yield +2%
-13.59%
If yield -1%
+7.79%
If yield -2%
+16.35%
Bond prices and yields move inversely because when market rates rise, existing bonds with lower coupons become less attractive, so their prices must fall to offer competitive yields to new buyers.
Duration measures a bond's price sensitivity to interest rate changes. A duration of 5 means a 1% rise in yields causes approximately a 5% drop in price. Modified duration provides a more precise estimate.
Duration is a linear approximation, but the price-yield relationship is actually curved (convex). Convexity captures this curvature and improves price change estimates for larger yield movements.
Price-yield dynamics are fundamental to CFA Level I Fixed Income. Level II expands into key rate duration and immunization strategies. Understanding duration and convexity is essential for portfolio management.