Might as well clarify another confusion too… Say you have 2 bonds: Bond A: Duration: 8, yield: 5% Bond B: Duration: 5, yield 4% time horizon is 3 months… For the yield difference on the top, does it matter which one you put first? How would you interpret this differently in terms of the way yields move ? When you hold the yield of Bond A constant and vary Bond B’s yield (and vice versa), does this make a difference in the order? Answer 1) (5%-4%)/4 /(-8) = -3.125 bps Answer 2) (4%-5%)/4 /(-8) = +3.125 bps Thanks!
what happens when yields go up!?!?!
So is what you’re saying, only the absolute value matters because we just want a relative comparison rather than the direction? Does this assume that we are holding Bond A’s yields constant or Bond B’s yields constant? how is that differentiated? Thanks!!!
the bond with the higher duration will be more sensitive. the decrease in price will be higher than that of the shorter duration. but the bond will only decrease in price if the yields go up in the market
I think you got Bond A and Bond B mixed up in your calculations