Key rate duration

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FrankCFA

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Is below statement correct? Thanks.
A bond has a 5-year key rate duration of 1.27. If the 5-year interest rate increases 1% and no other rates change, the bond will decline 1.27%.
 
Thanks, so the bond is not the bullet bond? Otherwise, a bond has a 5-year key rate menas it matures in 5 years. The duration should be 5?
 
There are a few things to keep in mind:
1. Duration is always smaller than the time to maturity for plain vanilla bonds. If a bond matures in say 10 years, duration will be <10.
2. For zero coupon bonds, duration is equal to its time to maturity.
Now, to answer your question,
-saying “A bond has a 5-year key rate duration of 1.27.” does not actually tell you when the bond matures. It could be 7, 10, 15 years. It simply tells you that the bond has exposure to changes in the 5-year interest rates, in the same way it has exposure to changes in 3-month key rate, 6month-key rate etc. So, no, you don’t know if the bond matures in 5 years.
 
ink wrote:2. For zero coupon bonds, duration is equal to its time to maturity.
Click to expand...
The Macaulay duration is equal to its time to maturity. Unless its YTM is 0%, its modified duration will be less than its time to maturity.
 
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