Hi Eric,

Investors want low convexity bonds right now because they are least sensitive to a change in yields. Right now bond prices are falling/yields are rising so folks want bonds that are less responsive to these changes.

Also, while it may look like capital losses are lower with a 30-year bond, take a look at the scale on the left-hand/vertical axis and you will see that it starts at -$5,000, as opposed to -$500 for the 10 year maturity bond, and $50 for the 1 year bond. What this means is that the capital loss on the 30-year bond if interest rates go up just 1.0% is 16.31%.

Download the spreadsheet and play with the assumptions in cells B12 and B13 to see the changes.

With smiles!

Jason