In simple words, why barbells are preferable when long term rate to decline and short term rate to increase?
long bonds are more sensitive to rate declines than short (aka it increases in value more and vice versa) therefore, long bonds will go up more than short bonds go down.
Barbell are usually riskier than bullet portfolios for 2 reasons: 1.barbell experiences the lower reinvestment rate longer than the bullet 2.More of the barbell is still outstanding at the end of the investment horizon. Which means that when long term rate declines and short term rate increases, the barbell causes much more of a capital Gain.
I agree. Barbell produces capital gains on their long term bonds due to lower interest rates and reduces reinvestment risk on the short term bonds due to increase in short term rates