What does duration measure in bond investments?

Duration is a crucial concept in bond investments as it measures the sensitivity of a bond's price to changes in interest rates. Specifically, duration estimates how much the price of a bond will change in response to a 1% change in yield, making it an essential tool for bond investors. A higher duration indicates greater sensitivity, meaning that the bond's price will fluctuate more with changes in interest rates.

Understanding this concept is important for managing interest rate risk in a bond portfolio. For example, if interest rates rise, the price of bonds with longer durations will typically drop more than those with shorter durations. This information can significantly influence investment strategies, portfolio duration management, and risk assessment in various interest rate environments.

The other choices, while related to bonds, do not address the specific measurement that duration represents. The time until maturity refers to the length of time until the principal is repaid, the total yield pertains to the return on investment from the bond, and the credit quality of the issuer assesses the likelihood of default on the bond. None of these elements capture the essence of what duration measures.