volatility of bond

                                                                   
                                                              Volatility of a Bond

Volatility measures the sensitivity of interest rate to bond prices. Sensitivity means 1% change of ytm will inversely related with the bond price. Duration of the bond can be used to estimate the price sensitivity.
                Hence duration is used in arriving at volatility and is given by the following formula:

                                            
                                       Volatility = duration /1+YTM

                                       For example:-

                                                   
                                                            Duration = 3.96

                                                            YTM         =12%

                                                            Volatility =3.96/1.12

                                                                             =3.53%

      So, every 1% change in YTM the price of the bond will change by 3.53%.