Why does a higher-coupon bond usually have lower duration even when maturity is the same?
I keep memorizing this rule, but I want a more intuitive explanation so I stop second-guessing myself on multiple-choice questions.
Duration falls when more of the bond's economic value arrives earlier.
Compare two 5-year bonds from Norcrest Logistics:
- Bond A coupon:
2% - Bond B coupon:
8%
Both mature in 5 years, but Bond B pays larger coupons along the way. Those earlier cash flows pull the present-value-weighted average payment date closer to today. That shortens Macaulay duration and usually lowers modified duration as well.
The intuition is simple: if the investor gets more money back sooner, the bond is less exposed to yield changes than a bond that defers most of its value into the final payment.
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