What aspect does the empirical duration primarily reflect?

The correct answer highlights that empirical duration primarily reflects historical price changes relative to interest rate changes. Empirical duration is a measure that assesses how much the price of a bond or a bond portfolio is expected to move with changes in interest rates. It is derived from actual market data rather than theoretical models and indicates the sensitivity of bond prices based on observed fluctuations in interest rates over time.

This concept is crucial because it provides investors with insights on how various bonds could respond to shifts in the interest rate environment, thereby enabling better portfolio management and risk assessment. By analyzing historical data, investors can make informed decisions about the potential risk associated with their bond holdings.

In contrast, projected future bond prices, sentiment towards credit risk, and future yield expectations encompass other dimensions of bond valuation and market analysis but do not specifically describe the empirical duration's focus on historical data regarding price and interest rate relationships.