Duration Risk

Duration risk is the threat that rising interest rates will reduce the value of long-term fixed-income investments.

November 24, 2025

- The risk that changes in interest rates will negatively impact the value of an investment, particularly fixed-income securities with longer maturities.

Scenario:

A private credit fund invests in long-term loans to renewable energy projects. Rising interest rates increase duration risk, potentially eroding returns.

Why This Matters:

Affects asset values and income, important for liability matching, impacts interest rate exposure and hedging.

The Process:

The fund uses interest rate swaps and duration matching to mitigate risk.