Key rate duration measures the sensitivity of a bond portfolio to...

Key rate duration is a crucial measure used in fixed income portfolio management that quantifies the sensitivity of a bond's price to shifts in the yield curve at specific maturity points. By focusing on non-parallel shifts, it allows investors to understand how changes to interest rates at different segments of the yield curve affect the overall value of the portfolio.

Non-parallel yield curve shifts refer to situations where interest rates change differentially across various maturities. For instance, a change in rates at the short end of the curve may not necessarily match a change at the long end. Key rate duration captures this nuance by identifying how much the price of a bond or a portfolio will change given a shift in yields at a particular key maturity point while holding other maturities constant.

This approach is essential for bond portfolio management since bonds typically have varying sensitivities to interest rate changes depending on their maturity profiles. Understanding these non-parallel movements helps investors hedge risk more effectively and make better-informed investment decisions.

In contrast, the other options focus on aspects that key rate duration does not specifically measure. For instance, while interest rate changes could affect bonds broadly, option B limits the scope to only long-end changes, which is a narrower view than that provided by key rate duration. Option