What does a long-term duration of securities typically lead to regarding performance?

A long-term duration of securities generally leads to volatile performance primarily due to their sensitivity to interest rate changes. When interest rates fluctuate, the price of long-duration securities is more affected than that of short-term securities. This is because the longer a security has until maturity, the more future cash flows are discounted, making them more sensitive to changes in the prevailing interest rates.

The longer duration means that investors are holding onto the securities over an extended period, during which economic conditions may change. This can cause significant shifts in market sentiment and valuations, leading to greater volatility in their performance. As interest rates rise, the value of long-term securities typically falls more dramatically, contributing to this volatility. Hence, the performance of these securities is less stable and can experience larger swings compared to short-duration alternatives.

In contrast, securities with shorter durations generally exhibit more stability and less sensitivity to interest rate changes, making them less volatile in performance.