local expectations theory - fixed income

[pmond]

From CFAI text:

“Although the local expectations theory is economically appealing, it is often observed that short-holding-period returns on long-dated bonds do exceed those on short-dated bonds. The need for liquidity and the ability to hedge risk essentially ensure that the demand for short-term securities will exceed that for long-term securities. Thus, both the yields and the actual returns for short-dated securities are typically lower than those for long-dated securities.”
If there is high demand for short term securities, their price goes up but your yield goes down, so how can “both the yields and the actual returns for short-dated securities are typically lower”? One works to offset the other. How do you know which will affect your return more? And I still don’t get why long term securities would have higher returns.

 

[pmond]

I guess the answer is duration, right? In other words, a 1% increase in yield doesn’t necessarily mean a 1% decrease in price.

 

[Rasec]

often observed that short-holding-period returns on long-dated bonds do exceed those on short-dated bonds *** I AGREE WITH THIS**** BECAUSE I SEE IT EVERY DAY.
The need for liquidity and the ability to hedge risk essentially ensure that the demand for short-term securities will exceed that for long-term securities. *** I ALSO AGREE WITH THIS. ASSET/LIABILITY MATCHING. MOST CORPORATES HAVE SHORTER-TERM LIABILITIES TO HEDGE.
Thus, both the yields and the actual returns for short-dated securities are typically lower than those for long-dated securities.” ** I ALSO AGREE** YOU WILL REQUIRE MORE RETURN FOR LONGER MATURIES….ALSO….TYPICALLY LOWER IS CORRECT.
THINK ABOUT CASH FLOWS AND NPV….
(I) IF YOU HAVE A 2 YEAR BOND 10% COUPON
(II) YOU HAVE A 4 YEAR BOND 10% COUPON
WHICH WILL HAVE A HIGHER YIELD, ALL ELSE EQUAL.

 

[pmond]

thank you for your input!
I get this:

Rasec wrote:
often observed that short-holding-period returns on long-dated bonds do exceed those on short-dated bonds *** I AGREE WITH THIS**** BECAUSE I SEE IT EVERY DAY.

and this

Quote:
THINK ABOUT CASH FLOWS AND NPV….
(I) IF YOU HAVE A 2 YEAR BOND 10% COUPON
(II) YOU HAVE A 4 YEAR BOND 10% COUPON
WHICH WILL HAVE A HIGHER YIELD, ALL ELSE EQUAL.

But these two I don’t understand:

Quote:
The need for liquidity and the ability to hedge risk essentially ensure that the demand for short-term securities will exceed that for long-term securities. *** I ALSO AGREE WITH THIS. ASSET/LIABILITY MATCHING. MOST CORPORATES HAVE SHORTER-TERM LIABILITIES TO HEDGE.
Thus, both the yields and the actual returns for short-dated securities are typically lower than those for long-dated securities.” ** I ALSO AGREE** YOU WILL REQUIRE MORE RETURN FOR LONGER MATURIES….ALSO….TYPICALLY LOWER IS CORRECT.

If I am asset and liability matching, that doesn’t always mean that I’m buying short term securities, sometimes I’m selling short term securities too right? So why would asset/liability matching only seem to imply that people are buying (“demand for short term securities will exceed that for long-term securities”). Isn’t it more correct to say that volume is higher for short term securities?
Also, let’s assume that there is more demand for your short term securities, couldn’t that also mean that your actual return is higher because the price is being driven up by buyers?