Scenario Comparison
Short- vs Long-Maturity Bond Comparison
Compare coupon income, price sensitivity and holding-period total returns for shorter- and longer-maturity bonds as yields change.
Set comparison conditions
Teaching assumptions, not historical performance. Both bonds use one currency and horizon. Purchase just after a coupon and sell on a coupon date after whole years, or redeem at maturity. No accrued interest or coupon reinvestment is added.
Shorter-maturity bond A (2 years)
Purchase yield setting
Longer-maturity bond B (10 years)
Purchase yield setting
Shared coupon frequency
Moving the slider sets both exit YTMs to their own initial yield plus the selected shift. You can also edit exit yields separately. 100 bp equals one percentage point.
Compare holding-period total returns
Shorter-maturity bond A (2 years)
Holding-period total return
3.04%
- Purchase price
- 10,000.00
- Coupon income
- 400.00
- Exit sale price
- 9,903.63
- Capital gain / loss
- -96.37
- Equivalent annualized return
- 3.04%
Longer-maturity bond B (10 years)
Holding-period total return
-3.18%
- Purchase price
- 10,000.00
- Coupon income
- 400.00
- Exit sale price
- 9,282.33
- Capital gain / loss
- -717.67
- Equivalent annualized return
- -3.18%
Over the assumed 1-year horizon, Shorter-maturity bond A (2 years) has the higher total return by 6.21 percentage points. Each return uses its own purchase price, rather than comparing gains in currency units.
Bars use a common scale for absolute contributions; signs indicate direction. Total return includes coupons, whereas price return includes only the price change. Annualization restates this outcome and is not a forecast of future annual returns.
- Bond A total return
- Bond B total return
Chart data
| Observation | Bond A total return | Bond B total return |
|---|---|---|
| -200 bp | 5.97% | 20.40% |
| -100 bp | 4.98% | 11.84% |
| 0 bp | 4.00% | 4.00% |
| 100 bp | 3.04% | -3.18% |
| 200 bp | 2.09% | -9.75% |
The sensitivity chart applies −200 to +200 bp to each initial YTM. It assumes parallel yield shifts and does not show official historical returns.
How to read the results
Longer bonds usually deliver cash flows later, so their present value often responds more strongly to yield changes when other terms are comparable. Duration measures that price sensitivity; it is not simply another name for maturity.
Coupons may partly or fully offset a price loss. Conversely, a higher coupon does not guarantee a higher total return. Compare purchase cost, coupons received, remaining life and exit yield together.
Method and assumptions
P₀ and Pₕ use the existing bond cash-flow engine: coupon per period equals face value × annual coupon rate / frequency, and periodic yield equals nominal annual YTM / frequency. Exit maturity is initial maturity less the horizon. At maturity Pₕ equals face value, with the final coupon already included in coupon income. Here J=0: no reinvestment gain. Annualized return=(1+HPR)^(1/h)−1.
Scope and model limitations
Only whole-year horizons on coupon dates are supported; accrued interest between coupon dates is not modeled. Bonds are fixed-rate, option-free and default-free, with no fees, taxes or currency effects. Their yields need not move together. Irregular cash flows, callable bonds and reinvestment need the appropriate tools. This example does not establish that long bonds always outperform or that short bonds are risk-free.
Frequently asked questions
Why not compare gains in currency units?
Coupon terms and purchase prices can differ. Each bond’s own purchase price provides the denominator for a comparable percentage return.
Does a policy rate cut guarantee a capital gain?
No. A bond’s YTM reflects expectations over a longer horizon and can move differently from the policy rate. Coupons and the holding horizon also affect total return.
Why use face value at maturity?
Assuming contractual repayment, no future cash flows remain after maturity. Principal and coupon are separate, so the final coupon is not counted twice.