# 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) β 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% β its worst year in decades β as the Federal Reserve raised rates aggressively. Long-duration bond funds fell 25β30%.
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: **ΞPrice β βDuration Γ Ξrate**
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 (1β3 year duration) have minimal rate sensitivity. Long-term bonds (15β20 year duration) are highly sensitive β they behave more like equities in terms of volatility.
Interactive Model
Bond Duration Risk Calculator
See how much a bond or fund loses when interest rates change β across durations.
Price change (%)
-6.50%
Dollar impact
-$650
New portfolio value
$9,350
Price sensitivity at duration 6.5 across rate scenarios
Duration approximation: ΞP/P β βDuration Γ Ξy. Accurate for small rate changes; convexity errors increase for larger moves. Actual fund performance will vary.
Duration in practice
**The U.S. Aggregate Bond Index** (tracked by BND, AGG) has a duration of approximately 6β7 years. A 1% rate rise means approximately 6β7% price decline.
**Short-term bond funds** (BSV, VGSH) have durations of 2β3 years β much lower rate sensitivity, but also lower yield.
**Long-term Treasury funds** (TLT, VGLT) have durations of 15β20 years β 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% Γ 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 β 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 β they provide rate protection via the inflation adjustment mechanism.
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*Related: [Asset allocation by age](./asset-allocation-age) β how much of your portfolio should be in bonds. [Rebalancing](./rebalancing) β managing your bond allocation over time.*