Module 3
Interest-rate risk
You already know bond prices fall when rates rise. This lesson answers how much. There are three numbers that professionals live by:
- DV01 — the dollar change in your position for a 1 basis point (0.01%) move in rates. It's your risk in plain dollars.
- Duration — the % price change per 1% move in yield. A duration of 8 means a 1% rate rise costs you roughly 8%. Longer bonds have higher duration.
- Convexity — the curvature. Price vs yield isn't a straight line, so convexity corrects duration for big moves (and it works in your favour).
There's one more, and it's the punchline: key-rate DV01. Instead of bumping the whole curve, you bump one maturity at a timeto see where your risk actually lives. For a single bond, almost all of it sits at the bond's own maturity — bump the 2y point and a 10y bond barely notices. Try it.
🎛 Risk playground
Price
96.848
DV01 ($/bp)
$7,856
Mod. duration
8.11
Convexity
75.0
Key-rate DV01 — where the risk lives ($/bp per tenor)
Almost all the risk sits at the bond's own maturity (the tall amber bar) — that's why a single bond is mostly exposed to rates at its tenor, not the whole curve. DV01 is the dollar move per 1bp; duration is the % price move per 1% yield; convexity is the curvature that makes big moves asymmetric. Educational tool — not investment advice.
Things to try
- • Bump parallel +25 bp and read the P&L. Now raise the maturity — the same bump hurts more (higher duration).
- • Switch the bump to a single tenor away from the bond's maturity — barely any P&L. Bump the tenor at its maturity — that's where it all is.
- • Watch the amber bar in the key-rate chart: it's the bond's own maturity, holding nearly all the risk.