With regard to Barbell portfolio, in the text I read that in an upward sloping yield curve scenario, the cash flow yield (which is essentially the portfolio IRR) is higher than the market weighted average of the individual bond yields (Exhibit 3 and 4 in CFA curriculum where market weighted comes to around 3.30% and portfolio IRR is about 3.76%). My question is: Why would the portfolio IRR GREATER than market value weighted average of individual bond yields in an upward sloping curve?
The best suggestion I can give you is to create a barbell portfolio in Excel and see what happens when the long-term yield is higher than the short-term yield. You should see it pretty quickly.
So if the LT bond has the smallest yield, the IRR is smaller than the weighted average of the yields ?
The best suggestion I can give you is to create a barbell portfolio in Excel and see what happens when the long-term yield is lower than the short-term yield. You should see it pretty quickly.