Goldman Sachs DeckHard

Rates rise by 1% — what happens to bond prices, and which falls more, a 2-year or a 10-year Treasury? Give a rough magnitude.

Model answer

Prices fall: a bond's fixed coupons are worth less when discounted at higher yields. The 10-year falls more because it has higher duration — more of its cash flows sit far in the future, where the…

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