In relative value analysis of global corporate bonds portfolio in Reading30,vol4, from P78~79, about bullets structures, why: 1, short term bullets are used on the short term/front end of “barbell” portfolio, while keep Treasuries on the long term end, what’s the benefit of this? 2, 10 years maturity bonds are popular, but 15 years maturity bonds are disadvantaged compared to 10 years? 3, 20-year structures was rarely favored since it has higher yields than 10-year and 15-year, with shorter duration than 30-year? the author made conclusions without detail explaination, only reason mentioned about my No.2 question got me confused. anybody could help me ?
I have skimmed through that session and will give a try. 1. In the short term, credit risk is low. So, take credit risk in the short term by investing in short term corporate bond and avoid credit risk in the long term by investing in treasury. This way one can take the advantage of credit yield spread without taking too much credit risk. 2. The structure of the market has been changing towards intermediate term bonds. The spread used for 15 year bond is based on 10-year bond. Means, when you invest in 15 year bond, you don’t get enough spread advantage but more risk than 10 year bond. 3. You may need to check it again. Based on the above analysis, 20 year bond should be favored as its spread is based on 30-year bond. Means, when you invest in 20 year bond, you get 30 year spread advantage and lower risk than 30-year bond. (you said 20 year is NOT favored, don’t know why. It should be favored) Any comments……….
many thanks tom18606 I think your answers to my first 2 questions are very helpful. but, no.3, the curriculum does said: rare 20 year bonds were favored, that is just why I got puzzled:since 20 year structure generate higher yield than 10 and 15 year’s but lower duration than 30 year’s, why it was rarely favored?
lipinyi, in the cirriculum it says " rare 20-yr structures have been favored by investors". Which means 20 yrs structures are favored and they are rare to find
amit_cfa2 Wrote: ------------------------------------------------------- > lipinyi, in the cirriculum it says " rare 20-yr > structures have been favored by investors". Which > means 20 yrs structures are favored and they are > rare to find Oh…and that make it clear.