What Is a Key Rate Duration

Key rate duration measures how the value of a debt security or a debt instrument portfolio, generally bonds, changes at a specific maturity point along the entirety of the yield curve.

What is a key rate?

The key rate is the interest rate at which banks can borrow when they fall short of their required reserves. They may borrow from other banks or directly from the Federal Reserve for a very short period of time.

How is key rate calculated?

Formula for Calculating the Key Rate Duration P+ – /the bond’s price after a 1% increase in yield. P0 – The original price of the bond.