Fixed Income Yield Curve Strategies

CFA Level III
#1

Hi All

Request your help, in the Fixed Income Yield curve strategies reading, below Exhibit 19 Expected Returns under Conditions of (1) a Stable Yield Curve and (2) a +60 bp Parallel Yield Curve

There is a note that says

Recall that the return of a sovereign bond over a one-year period (Column E at the one-year maturity), regardless of maturity, is always the one-year risk-free rate if the spot rates evolve as implied by the current forward curve at the end of the first year.

However if we look at column E the one year holding period return is different for each year, 1 year bond is 1.5 % 2 year bond is 2.31% 3 year bond is 2.85 %

Could someone please explain how does the note relate to the returns in column E and why the holding period returns are not the same 1.5% for all year? Thanks.

#2

The spot rates _ are not _ evolving as implied by the current forward curve; column E assumes that the yield curve is unchanged.

#3

Thank you so much S2000magician , I did not realize this.

#4

My pleasure.