# Bond Duration Risk: Why Rising Rates Hurt Bond Prices
"Bonds are safe" is one of the most persistent misconceptions in personal finance. Bonds are safe from default risk (for investment-grade and government bonds) — but they carry significant interest rate risk, and that risk scales directly with duration.
The 2022 bond market provided a painful reminder: the Bloomberg U.S. Aggregate Bond Index fell approximately 13% — its worst year in decades — as the Federal Reserve raised rates aggressively. Long-duration bond funds fell 25–30%.
What duration means
Duration is a measure of a bond's sensitivity to interest rate changes. Technically, it's the weighted average time to receive a bond's cash flows, expressed in years. Practically, it tells you: if interest rates rise by 1%, how much will this bond or fund lose in value?
The approximation: **ΔPrice ≈ −Duration × Δrate**
A bond fund with a duration of 7 years will lose approximately 7% in value if interest rates rise 1%. If rates rise 2%, it loses approximately 14%.
Short-term bonds (1–3 year duration) have minimal rate sensitivity. Long-term bonds (15–20 year duration) are highly sensitive — they behave more like equities in terms of volatility.
Expense Ratio Drag
A 1% fee compounded over 30 years can eat 25-30% of final wealth. The headline expense ratio looks tiny — its lifetime impact rarely is.
That's 16% of your fee-free FV — gone, just to fees.
Educational illustration — not financial advice. Math: @/lib/finance/investing.ts. Real fees compound on the balance every year — this calculator approximates that with a constant-rate net return.
Duration in practice
**The U.S. Aggregate Bond Index** (tracked by BND, AGG) has a duration of approximately 6–7 years. A 1% rate rise means approximately 6–7% price decline.
**Short-term bond funds** (BSV, VGSH) have durations of 2–3 years — much lower rate sensitivity, but also lower yield.
**Long-term Treasury funds** (TLT, VGLT) have durations of 15–20 years — high yield but enormous rate sensitivity.
The 2022 experience: the Fed raised rates by approximately 4.25% over the year. A fund with duration 7 would have lost approximately 7% × 4.25 = ~30% from rate moves alone (partially offset by coupon income).
How to manage duration risk
**Match duration to your time horizon:** If you need the money in 3 years, a 3-year duration bond fund eliminates rate risk — you'll receive your yield regardless of rate moves if you hold to maturity.
**Laddering:** Hold bonds maturing at regular intervals (1, 2, 3, 4, 5 years). As rates rise, maturing bonds are reinvested at higher yields, reducing the impact of rate changes on total return.
**TIPS for inflation protection:** Treasury Inflation-Protected Securities have shorter effective duration because their principal adjusts with inflation — they provide rate protection via the inflation adjustment mechanism.
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*Related: [Asset allocation by age](./asset-allocation-age) — how much of your portfolio should be in bonds. [Rebalancing](./rebalancing) — managing your bond allocation over time.*
Frequently Asked Questions
why do bond prices fall when interest rates rise
Bond prices move inversely to rates because existing bonds become less attractive when new bonds offer higher yields. The longer a bond's maturity (duration), the larger the price decline—a concept called duration risk that investors must understand when allocating to bonds.
what is bond duration and why does it matter
Duration measures a bond's sensitivity to interest rate changes, expressed in years. A 5-year duration bond falls roughly 5% in price for every 1% rate increase. Understanding duration helps you assess interest rate risk and align bond holdings with your investment timeline.
how do I protect my bonds from rising interest rates
Shorten duration by favoring shorter-maturity bonds or bond funds with lower weighted-average maturities. Alternatively, accept duration risk as compensation for yield, or ladder bonds across maturities to reduce reinvestment risk while maintaining diversification across the yield curve.