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

CFA Level III Fixed Income
#1

Hello all,

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

[question removed by moderator]

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!

#2

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

#3

To S2000magician,

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.

#4

Yup.