Even default-free bonds such as Treasury issues are subject to interest rate risk. Longer-term bonds generally are more sensitive to interest rate shifts than are short-term bonds. A measure of the average life of a bond is Macaulay's duration, defined as the weighted average of the times until each payment made by the security, with weights proportional to the present value of the payment.

Duration is a direct measure of the sensitivity of a bond's price to a change in its yield. The proportional change in a bond's price equals the negative of duration multiplied by the proportional change in 1 + y.

Convexity refers to the curvature of a bond's price-yield relationship. Accounting for convexity can substantially improve on the accuracy of the duration approximation for the response of bond prices to changes in yields.

Immunization strategies are characteristic of passive fixed-income portfolio management. Such strategies attempt to render the individual or firm immune from movements in interest rates. This may take the form of immunizing net worth or, instead, immunizing the future accumulated value of a fixed-income portfolio.

Immunization of a fully funded plan is accomplished by matching the durations of assets and liabilities. To maintain an immunized position as time passes and interest rates change, the portfolio must be periodically rebalanced. Classic immunization also depends on parallel shifts in a flat yield curve. Given that this assumption is unrealistic, immunization generally will be less than complete. To mitigate the problem, multifactor duration models can be used to allow for variation in the shape of the yield curve.

A more direct form of immunization is dedication, or cash flow matching. If a portfolio is perfectly matched in cash flow with projected liabilities, rebalancing will be unnecessary.

Active bond management consists of interest rate forecasting techniques and intermarket spread analysis. One popular taxonomy classifies active strategies as substitution swaps, intermarket spread swaps, rate anticipation swaps, and pure yield pickup swaps.

Horizon analysis is a type of interest rate forecasting. In this procedure the analyst forecasts the position of the yield curve at the end of some holding period, and from that yield curve predicts corresponding bond prices. Bonds then can be ranked according to expected total returns (coupon plus capital gain) over the holding period.