What is Yield Sensitivity?
Let's find out Yield Sensitivity meaning, definition in crypto, what is Yield Sensitivity, and all other detailed facts.
Yield sensitivity (also known as interest rate sensitivity) is a measure that shows how much the price of fixed-income assets swings as interest rates change. The higher the yield sensitivity, the more likely it is that the price of the asset will fall as interest rates rise. Depending on the impact an interest rate change has on the price of a bond, yield sensitivity can be either positive or negative.
It's usually calculated as the percentage change in price that would occur if a coupon rate of a bond increased by 1%. For instance, a bond with a $1,000 par value and a 5% coupon rate that is currently trading for $1,050 would have a yield sensitivity of 5%. This means that a 1% increase in interest rates would cause the bond's value to decline by 5%.
Interest rate sensitivity can be treated as an investment characteristic, which can help investors make better portfolio decisions. Since interest rates affect the value of bonds and other fixed-income investments, investors must consider their personal interest rate sensitivity when determining how much of these securities should be included in their portfolios.
Investors that are more sensitive to interest rate hikes favor investments with lower interest rate sensitivity, as they are less likely to lose money if the market swings against them. Investors who aren't concerned about rising interest rates prefer investments with a higher interest rate sensitivity because they aren't concerned about the investment's value being negatively influenced by a rise in interest rates.