Term structure of yield volatility

CFA Level I
#1

How can term structure of yield volatility by downward sloping if long maturity bonds are generally more sensitive to interest rate changes?

#2

You’re confusing sensitivity to interest rate changes with volatility of interest rate changes.

Long-duration bonds’ prices are more sensitive to interest rate changes than short-duration bonds’ prices. However, short-term interest rates may be more volatile than long-term interest rates. The two effects are independent of each other.

#3

Thanks!

#4

You’re welcome.