A few questions from my recent L3 review

Hi All,

If anyone could take a stab at the below Qs and concepts, that would be very helpful.

  1. higher risk assets = higher volatility and according to the material, the higher the volatility of the asset class, the narrower the corridoor.

Im confused from the answer below as to what we are supposed to choose. Thanks!


Carry Trades in Fixed Income:

If anyone is using Schweser material to study, for Fixed Income LOS 20g (discuss inter-market curve strategies), Example 6B , the answer says “the US curve is flattest at +30bps” so sell the US 5 yr at 1.5% and buy the US 6 month at 1.2%. (to duration neutralize a carry trade). The US curve is below. The entire slope of the curve is +30bps, Im not quite following how the curve is “flattest” at 30 bps. The US curve is the flattest between the 3 yr and 5yr.

The US Curve:
6 month 1yr 3 yr 5yr
1.2% 1.4% 1.5% 1.5%