IFT Notes for Level I CFA® Program
IFT Notes for Level I CFA® Program

R54 Understanding Fixed-Income Risk and Return

3.3. Key Rate Duration

Key rate duration is a measure of a bond’s sensitivity to a change in the benchmark yield curve at a specific maturity. This topic is covered in detail at Level II.

The duration measures we have seen so for assume a parallel shift in the yield curve. But what if the shift in the yield curve is not parallel? Here it is appropriate to use ‘Key rate duration’.

Key rate durations are used to identify “shaping risk” of a bond, which is a bond’s sensitivity to changes in the shape of the benchmark yield curve. For instance, analysts can analyze the interest rate sensitivity if the yield curve flattens or if the yield curve steepens.