Bond Market Escape Velocity BETA

About This Tool

This tool identifies the point on the government bond yield curve where the bond yield equals its modified duration, the escape velocity.

At this point, one year of interest income offsets the price decline from a 1% rise in rates. The bond breaks free from rate risk over the same period in which it earns its coupon. Anywhere the blue line sits above the red line represents positive escape cushion.

Use the rate shock selector to test scenarios beyond the standard 100 basis point move. A 200bp shock requires twice the income to offset the same duration risk, so the escape point shifts dramatically inward.

To understand this concept in more detail please Read the full article

Govt Bond Yield Curve & Calculation

Escape zone Trapped zone
Maturity Years Yield (%) Loss Est. Cushion
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Historical Context: Where Escape Velocity Has Sat, 1980 to Present

For each year since 1980, this chart shows where escape velocity would have sat assuming a flat curve at that year's average 10Y Treasury yield. The shaded band represents the 1Y to 10Y maturity range. When a bar sits above the band, the entire usable curve was in the escape zone. When a bar sits below the band, no meaningful maturity offered escape from a 100bp rate rise. Hover any bar for details.
Methodology: Modified duration is calculated using the par bond formula with semi-annual coupons, not a zero coupon approximation. Convexity is excluded, so actual breakeven is marginally better than this linear estimate, particularly at long maturities. NB - The same escape velocity threshold roughly applies to TIPS of comparable maturity. Path volatility is similar between nominal Treasuries and TIPS, but TIPS provide real return certainty as additional compensation for that volatility, making them attractive for long horizon investors who can tolerate the mark-to-market noise.