Also, mortgages have a duration (a calculation of the time it takes to get paid back) that is a variable, hypothetical duration that varies with prepayment speeds, so a short duration mortgage portfolio is not protection against a sudden increase in interest rates, because if interest rates rise the duration will rise which hurts the value of the bond.

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Duration measures the amount of time until a bond matures, and longer-duration bonds fall harder when interest rates rise.

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For instance, a mutual fund with a duration of 12 will drop approximately 12% for every 1% rise in interest rates.

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We have seen long rates rise in recent months as inflation fears mount and bondholders have been reducing the duration of their portfolios.

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