The asset-weighted average of the average maturity, duration, and credit quality of the bonds in the portfolio. The sum of the maturity, duration, and average credit quality for each holding multiplied by the weight (%) each holding takes up in the portfolio equals the average maturity, duration, and average credit quality for the portfolio.
Maturity
This figure is computed by weighting the maturity of each security in the portfolio by the market value of the security, then averaging these weighted figures. We list average effective maturity for taxable fixed-income funds and average nominal maturity for municipal-bond funds.
Duration
This is the average effective duration of a fund's interest-rate sensitivity—the longer a fund's duration, the more sensitive it is to shifts in interest rates. Duration is determined by a formula that includes coupon rates and bond maturities. Small coupons tend to increase duration, while shorter maturities and higher coupons shorten duration. The relationship between funds with different durations is straightforward: A fund with a duration of 10 years is twice as volatile as a fund with a five-year duration. Morningstar prints an average effective duration statistic that incorporates call, put, and prepayment possibilities.
Average Credit Quality
An average of all the credit quality positions for a fund’s bond holdings. The credit quality levels range (from AAA (highest) to B (lowest)). Morningstar generates this information based on the portfolio data of the fund. U.S. Government bonds carry the highest credit rating, while bonds issued by speculative or bankrupt companies usually carry the lowest credit ratings. Anything at or below BB is considered a high-yield or "junk" bond.