Higher Bond Nominal Return - > Higher Duration?

CFA Level III
#1

  1. Higher Bond Nominal Return - > Higher Duration.

  2. Higher (lower) market yield means lower (higher) duration.

Does the first statement stand? If so, does it conflict with the second one?

Thank you!

#2

If by nominal return you mean coupon rate then the first statement is incorrect; a higher coupon rate results in a lower duration.

The second statement would be correct. If market yields are high a percent change in yields will not change the bond price much, which is the definition of low duration.

#3

Thanks, krokodilizm!

I was looking at the Breakeven analysis example in Kaplan book. Where they show the foreign bond nominal return is 5.25%, duration is 6.3 While the domestic bond nominal return is 4.75 and the duration is 4.5%.

That is why I am wondering which yield are they talking about? Based on the second statement, the higher market yield, the lower duration. But here, the higher yield, higher duration…

#4

Do the bonds have the same maturity? The same YTM?

#5

Thanks, S2000! I forgot that they can have different maturiry…

Just want to confirm, the yield they mentioned (5.25% and 4.75%), those are YTM (market yield), right? I think I am forgetting some basics so just want to double check.