Negative duration

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Negative duration

Occurs when the price of an MBS moves in the same direction as interest rates.

Negative Duration

1. A situation in which the price of a bond or other debt security moves in the same direction of interest rates. That is, negative duration occurs when the bond prices go up along with interest rates and vice versa.

2. In banking, a situation in which the duration of a bank's liabilities exceeds that of its assets. Negative duration means that the bank's equity is negative.
References in periodicals archive ?
For instance, the policies with maturities longer than 18 years have negative durations when the interest rate is 6 percent or 8 percent.
The abnormal durations including negative durations and extreme durations found in the previous sections imply that a life insurer might have great difficulties in finding assets to match individual policies.
The negative durations and huge duration figures of some policy reserves do not result in an abnormal portfolio duration because these individual reserves are small.
A negative duration coupled with a negative reserve implies that increases in the interest rate will decrease the policy reserve, which is inferred from Equation (5):