I would like to know if this difference occurs when the coupon payments are very large and/or if there are other reasons.

1 Answer 1


There are several reasons why the average effective duration might be significantly less that the average maturity:

  • Use of floating-rate bonds (they have very small effective durations)
  • Use of derivatives (i.e. bond futures or swaps)
  • Use of bonds with embedded options (callable/putable)

Any of those can be used to manage duration.

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