1

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

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.

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.