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Key Rate Duration

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Key rate duration measures portfolio sensitivity or security sensitivity. Key rate duration is the sensitivity of a portfolio's (or security's) value in relation to a 1% change in yield for a given maturity. Duration is the value of a 1% change (100 basis points) in yield for a given maturity. Key rate duration is specialized form of duration. Key rate duration addresses the key rates which are the maturities of the U.S. Treasury spot rate curve. Key rate duration is calculated by changing the market rate for one specific maturity point on the yield curve while holding all other variables constant. Each key rate duration for a portfolio yield curve quote summed together are equal to the effective portfolio duration. The most common form of partial duration, key rate duration is often applied to rate changes that affect only a small part of the yield curve. Key rate duration is quoted as a percentage or in basis points.



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