Which bond characteristic correlates with greater price volatility?

The characteristic associated with greater price volatility in bonds is longer duration. Duration measures the sensitivity of a bond's price to changes in interest rates. Bonds with longer durations are more affected by interest rate fluctuations because they have a longer time until maturity. When interest rates rise, the present value of a bond with a longer duration decreases more significantly than that of a bond with a shorter duration. This means that for a bond with a longer duration, any increase in market interest rates results in a more pronounced decline in price, leading to greater volatility.

In contrast, shorter duration bonds are less sensitive to interest rate changes, resulting in lower price volatility. Lower coupon rates do not inherently lead to greater price volatility; rather, they may indicate less return potential under certain market conditions. Lastly, the face value of a bond refers to the amount the bond will pay at maturity and does not directly influence how volatile the bond's price will be in response to market interest rate movements. Therefore, longer duration is clearly identified as the characteristic that correlates with greater price volatility.