If interest rates rise, however, the price sensitivity of non-amortizing callable bonds will ultimately approach the sensitivity of non-callable securities with the same final maturity. For example, the five, non-call two bond above initially will have the price sensitivity of a bond with a two-year final maturity. However, if interest rates continue to rise, the bond will eventually begin to depreciate like other securities with the same final maturity. Therefore, callable securities can lose value at an increasing rate as the security’s effective maturity becomes longer. .
