Bond Basics for Beginning Investors: Duration, Yield, and Interest Rate Risk

Bonds are often sold as the “safe” side of a portfolio. They’re safer than stocks in some ways and carry their own real risks that catch first-time bond buyers off guard.

Yield: What You’re Actually Being Paid

As of August 2026, the 10-year U.S. Treasury yield sits around 4.68%. That yield moves inversely with bond prices: when prices fall, yields rise, and vice versa, because the fixed interest payment becomes a larger or smaller percentage of a changing purchase price.

Duration: The Number That Actually Measures Your Risk

Duration measures a bond’s price sensitivity to interest rate changes, expressed in years. A bond with a duration of 7 means its price will fall by roughly 7% if interest rates rise by 1 percentage point, and rise by roughly 7% if rates fall by 1 point. Longer-maturity bonds have longer durations and are more sensitive to rate moves; a 2-year Treasury might have a duration near 1.9, while a 30-year Treasury can have a duration above 17.

Why “Safe” Bonds Can Still Lose Money

A Treasury bond carries essentially no default risk — the U.S. government isn’t going to fail to pay it. That doesn’t protect its market price from interest rate risk. Long-duration bond funds lost double-digit percentages in 2022 as the Federal Reserve raised rates aggressively, despite holding bonds that were never at risk of default.

Holding to Maturity vs. Selling Early

An individual bond held to maturity returns its full face value regardless of what happened to its price in between, assuming no default. A bond fund never “matures” in that sense — it continuously buys and rolls new bonds — so a bond fund’s price can stay depressed for as long as rates stay elevated, which matters for anyone assuming bond funds behave like individual bonds.

Matching Duration to Your Timeline

Money needed in the next 1-3 years is generally better suited to short-duration bonds, a high-yield savings account, or Treasury bills, precisely because their prices move less when rates change. For near-term cash, a short-term Treasury ladder is often a better fit than a long-duration bond fund. Longer-duration bonds make more sense for money with a longer time horizon that can ride out a temporary price swing.

Written by Samuel, Certified Public Accountant

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