Relationship of Bond Prices to Changes in Maturity and Coupon

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What this video covers

  • Why pull to par is an automatic force that pulls every bond to par value at maturity, totally independent of interest rate movements
  • How portfolio managers use maturity extension and shortening to position for expected rate declines or increases
  • What a laddered portfolio is, why it requires no interest rate forecast, and how to distinguish it from a directional bet on long maturities
  • What a bullet portfolio is, when it matches a known cash need, and how it concentrates reinvestment and price risk in a single year
  • Why high-coupon bonds are less sensitive to rate changes than low-coupon bonds, and how coupon payments act as cash-flow cushions
  • Why zero-coupon bonds have the highest duration for any given maturity, with no intermediate payments to soften rate impacts
  • How to rank bonds by price volatility using the formula: longest maturity plus lowest coupon equals maximum interest rate risk

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