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A question about selecting a yield curve strategy that would most likely realize the highest profit

Hello all,

In the Curriculum Book 4, SS10-11, Fixed income portfolio management, Reading 24 Yield Curve Strategies, Question #7,

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Has anyone considered the option C? Buying long-term bonds can also realize profits, I think it’s even better than the bullet strategy. Thank you!

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What happens to long-term bonds when the yield curve steepens?

Simplify the complicated side; don't complify the simplicated side.

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To S2000magician,

S2000magician wrote:

What happens to long-term bonds when the yield curve steepens?

A: Carry trade (double losses)
Long ST bonds=> yield↑=>price↓=>loss
Short LT bonds=>yield↓=>price↑=>loss

B: Bullet(No gain or loss)
yield remains the same=>price remains the same=>No gain or loss

C: Long LT bonds (loss)
Long ST bonds=> yield↑=>price↓=>loss

So B is better than either A or C.

Yup.

Simplify the complicated side; don't complify the simplicated side.

Financial Exam Help 123: The place to get help for the CFA® exams
http://financialexamhelp123.com/