Zero-Gap Condition

A zero-gap condition exists when a financial institution’s interest rate-sensitive assets and liabilities are in perfect balance for a given maturity. The condition derives its name from the fact that the duration gap – or the difference in the sensitivity of an institution’s assets and liabilities to changes in interest rates – is exactly zero. Under this condition, a change in interest rates will not create any surplus or shortfall for the company, since the firm is immunized to its interest rate risk, for a given maturity.