Why do some mutual funds or indexes have an average effective maturity that is way larger (2-4 times larger) than the average effective duration?

Question

I would like to know if this difference occurs when the coupon payments are very large and/or if there are other reasons.

Answer 1

There are several reasons why the average effective duration might be significantly less that the average maturity:

• Use of floating-rate bonds (they have very small effective durations)
• Use of derivatives (i.e. bond futures or swaps)
• Use of bonds with embedded options (callable/putable)

Any of those can be used to manage duration.