Duration type

Duration type is the classification of bonds or other fixed-income securities based on their maturity or duration characteristics. Understanding the duration type of a bond is essential for investors to assess the risk profile, investment horizon, and income potential associated with the bond.

Short-term

Bonds with a short-term duration typically have maturities of less than 3 years. These bonds are considered to have relatively lower interest rate risk compared to longer-term bonds. Short-term bonds are often used by investors seeking to preserve capital and maintain liquidity over a shorter investment horizon.

Medium-term

Medium-term bonds have maturities ranging from 3 to 10 years. These bonds offer a balance between risk and return, providing investors with a moderate level of interest rate risk and potential yield. Medium-term bonds are suitable for investors looking for a blend of income generation and capital appreciation over a moderate time frame.

Long-term

Long-term bonds have maturities exceeding 10 years. These bonds are more sensitive to changes in interest rates and carry higher interest rate risk compared to short and medium-term bonds. Long-term bonds are typically used by investors with a long investment horizon seeking higher potential returns but are willing to accept greater volatility.

Perpetual

Perpetual bonds, also known as perpetuities, have no fixed maturity date and pay interest indefinitely. These bonds provide a fixed coupon payment to investors without the obligation to repay the principal amount. Issuers can redeem them at their discretion. Perpetual bonds can be attractive to investors seeking a steady income stream without a maturity date.