651 B
651 B
A lower coupon bond pays you less cash along the way, meaning more of its total value is tied up in that single par value payment at maturity. That distant lump sum is more sensitive to interest rate changes than frequent coupon payments.
A higher coupon bond pays you more cash sooner — those early payments are less affected by rate changes, so the overall price is more stable.
The two rules together:
- Same coupon, different terms → longer term is more volatile
- Same term, different coupons → lower coupon is more volatile
Think of it this way: the less cash you get upfront, the more exposed you are to rate changes.