Hi - Can someone kindly explain how Butterfly spreads work in Fixed Income and what strategy is best used towards it?
I recall being taught that butterfly spreads are when the ST and LT rates rise, and there is an increase in curvature of the yield curve. With this shape mapped my head I’d have thought SHORT barbell and LONG bullet would be best attributed to it.
However after doing a Fitch mock I saw the answer was the opposite? The explanation doesn’t really go into much detail and I can’t find a concrete reading in the actual text…