Why are long term bonds subjected to a higher volatility, as well as higher yield than short term bonds? (Assuming normal yield curve). Say, I have 2 investment options and my investment horizon is 2 years:
- A 10-Year govt bond
- A 2-Year govt bond
I can either hold a 10Y government bond for 2 years, then sell it in the market after 2 years, or hold the 2 year government bond until maturity.
Since we can decide our investment horizons regardless of the maturities of the bonds, why doesn't the ability to trade any time you want eliminate the difference of volatility and yield between a 2Y and a 10Y government bond?