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As per the definition "Duration is the average time one has to wait till the payment is received". Going by this if, say, duration is 2.5 years means I would receive my money in ~2.5 years. Well.

But, as you may be aware, there are some securities IO strips and FRNs, which are said to exhibit negative duration. I have not seen in terms of numbers but say duration for an IO is -1.0. What does this mean in terms of above definition.

But if I google, the explanation given in terms of the price movement similar to interest rates. For example, they say the price of IO increases when interest rates increase (as opposed to decrease due to inverse price yield relation).

But I would like to understand STRICTLY from the point of view of the definition i.e. Duration is the average time one has to wait till the payment is received. In this case can we say, I receive my money before even I pay something for the security ??? How IOs have negative duration?

Thank you in advance.

FRMBHB

But, as you may be aware, there are some securities IO strips and FRNs, which are said to exhibit negative duration. I have not seen in terms of numbers but say duration for an IO is -1.0. What does this mean in terms of above definition.

But if I google, the explanation given in terms of the price movement similar to interest rates. For example, they say the price of IO increases when interest rates increase (as opposed to decrease due to inverse price yield relation).

But I would like to understand STRICTLY from the point of view of the definition i.e. Duration is the average time one has to wait till the payment is received. In this case can we say, I receive my money before even I pay something for the security ??? How IOs have negative duration?

Thank you in advance.

FRMBHB

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