Moving the maturity
Maturities on fixed-income securities can range from months to decades. As mentioned, one way investors sought higher yields was by purchasing fixed-income securities with longer maturities.
Typically, bonds with longer maturities have higher yields. The problem is, the longer the maturity, the more sensitive the price of the bond is to interest-rate changes.
In our initial seesaw example, the fulcrum was placed directly in the middle, balancing the move between bond prices and interest rates. If we move the fulcrum from the center and over to represent a bond with longer maturity, the relationship between the movement of interest rates and bond prices becomes exaggerated.
Small upward or downward moves in interest rates may lead to much larger moves in bond prices; the longer the maturity, the greater the impact.
(Read more: Rates rise aside, bonds still a good bet)
The relationship between maturity and prices can be seen by comparing the 2013 total return for two U.S. Government fixed-income securities. The total return for the Barclays U.S. Long-Term Treasury Total Return Index was down 12.66 percent, but the Barclays U.S. Treasury Bill Total Return Index was actually up 0.10 percent. The longer maturity of the U.S. Long-Term Treasury Bond created a significantly greater loss than the shorter-term U.S. Treasury Bill during a period of rising interest rates.