IAmNeil

The trick is to hold the shape of the yield curve constant through the immunisation period. Let's say the 2year yield is 2%, the 3year yield is 3% and the 5year yield is 5%. If the immunisation period is 5 years, any asset cash flow received at the end of year 2 will be reinvested at 3%, because this is the rate for a 3 year investment.

Because we are not satisfying the assumption under YTM, that all cash flows are reinvested at the YTM, we have to start off with a present value of the asset, that is slightly greater than the present value you would need if all cash flows were reinvested at the YTM. And because your present value is slightly higher, your immunisation rate is lower.