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for interest yield curve was expected to steepen and interest rate to rise, why does short maturity bonds suffer smaller decease in bond prices?
I cannot find the question Gaddes! Was it a past exam question? If so, then please say which exam.
However, in general that statement is true – the longer the time to maturity, the more sensitive the market value is to changes in interest rates. Similarly, the shorter the time to maturity, the less sensitive (the market value will change less as interest rates change – where interest rates go up or down).
The best way of understanding that this is the case is to look at the first 3 exams in Chapter 8 of our course notes. They should not take you very long.
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