I was trying to think about some of the properties noted by BKM and how the dP/P = -D*(dy) + .5C(dy)^2 formula can explain it. For example, bonds with larger coupons are less sensitive to changes in yield than bonds with smaller coupons. This can be explained because larger coupons lower duration, which then decreases dP/P.
Can people help me figure out how to explain the following three properties? If they can't be explained using the formula, then please provide the rationale to help me understand it. Thank you!
1. Increases in yields have smaller impacts than comparable decreases in yields.
2. Sensitivity to yield changes increases at a decreasing rate as maturity lengthens.
3. Sensitivity of a bond's price to yield changes is inversely related to the yield at which it is currently selling.
Thank you!
Can people help me figure out how to explain the following three properties? If they can't be explained using the formula, then please provide the rationale to help me understand it. Thank you!
1. Increases in yields have smaller impacts than comparable decreases in yields.
2. Sensitivity to yield changes increases at a decreasing rate as maturity lengthens.
3. Sensitivity of a bond's price to yield changes is inversely related to the yield at which it is currently selling.
Thank you!
Bond price sensitivity to yield (BKM 16)
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