What is Key Rate Duration?

Key Rate Duration (KRD) decomposes overall duration into sensitivities at specific maturity points on the Treasury curve (e.g., 2-year, 5-year, 10-year, 30-year). While effective duration measures sensitivity to a parallel shift in the entire curve, KRD reveals where on the curve the portfolio is most exposed. A portfolio with high KRD at the 5-year point but low KRD at the 2-year point is sensitive to changes in intermediate rates but not short-term rates. KRDs are essential for hedging; they tell you which Treasury instruments to use to neutralize rate risk at each maturity point.

How LoanBook Uses Key Rate Duration

LoanBook calculates key rate durations in its ALM simulation, measuring the change in the economic value of equity for a shock at each point on the curve. They support balance sheet hedging analysis; the OAS engine reports effective duration and convexity for a pool.