Set out the measures used to gauge risk and return in a bond portfolio and how bonds co-move with other assets

Portfolio duration, approximated by the market-value-weighted average of holdings' durations, measures sensitivity to parallel yield shifts. Convexity captures curvature, so %ΔP ≈ −D × Δy + ½ × C × (Δy)². Effective duration is used when cash flows depend on rates, as with callable bonds or mortgage-backed securities. Spread duration measures sensitivity to credit spreads, and key rate durations show exposure to shifts at particular maturities. Correlation of government bonds with equities has often been low or negative, but high-yield bonds behave more like equities, and correlations shift across inflation regimes. Applying modified duration to bonds with embedded options misstates their rate sensitivity.