negative duration

negative duration
(1) The name for a particular relationship between changes in the price of a debt security and changes in prevailing interest rates. When a security has negative duration, its price decreases in response to a decrease in prevailing market rates. Very few securities have negative duration. Note that the term "duration," as used in this definition, refers to modified duration.
(2) For a financial institution, a situation in which the total duration of its assets is shorter than the total duration of its liabilities. In such cases, the duration of equity is negative. In other words, an entity with short-term assets funded by long-term liabilities will have a negative duration of equity. A financial institution that has a negative duration of equity may also be described as having a positive gap or as being asset sensitive. The theoretical equity value, but not necessarily the stock price, of a financial institution with a negative duration of equity will decrease if rates decline and increase if rates rise. Note that the term "duration," as used in this definition, refers to modified duration.
See convexity, effective duration, Macaulay duration and modified duration. American Banker Glossary
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Occurs when the price of an MBS moves in the same direction as interest rates. Bloomberg Financial Dictionary

Financial and business terms. 2012.

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