The other measure that affects a bond’s sensitivity to interest rates is the term. With everything else being equal, the bond with the longer term responds more sharply to interest rate changes than the bond with the shorter term. Here, too, focusing solely on interest income is fallacious, though the short-term bond may be paying you more than the long-term one. With the long-term bond, you have the opportunity – albeit at a slightly lower interest income – to avail yourself of the opportunity at higher capital values and much higher profits.
