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Author: ricerFool Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35932  
Subject: Re: Bond Duration vs Maturity Date: 4/28/2003 8:36 AM
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I believe that duration is a average measure of how long any 'ole bond is held in the portfolio.

I believe that maturity is the average length to maturity of any 'ole bond in the portfolio.

For example, say your bond fund is one of mortgage backed securities. (The easiest, identfiable example of this would be a GNMAE, "Ginnie Mae" fund.)

So in this fund, there are a collection of bonds which are backed by 30, 20 and 15yr mortgages. (A Ginnie Mae bond is a bundle of mortgages wrapped up into $1M chunks.)

(It helps to not think of the wrapped up mortgages comprising the Ginnie Mae bond, but just of the mortgages themselves in my example...)

So, your fund has a collection of 30, 15, and 20 yr mortgages. Therefore, the average maturity would be the average of all these. If the fund had equal #'s of 30 and 20 yr bonds (i.e. mtgs) then the average maturity would be 25 yrs.

Now your fund manager doesnt hold all these bonds to maturity, sometimes he would sell them, based on capitial appreciation/depreciation. That average holding time is duration.



(non-owner of Ginnie Mae funds or individual bonds. I call my CD savings my "bonds"!)
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