Does CFM reduce Non-Parallel shift of yield curve? Why?
I believe because cash flow of liabilities are matched with bonds maturing at the same time. So non parallel shift will have the same effect on both
if you match all the durations for each individual cash flow then no matter what happens to the yield curve, each individual cash flow asset will change equally with each individual cash flow of the liabilities. Changing at the same rate essentially reduces the risk of non-parallel shifts.
I think the changing of I/R & DUR is irrelevant in CFM because the both the amounts (cash flows) of A/L are fixed. That’s why CFM is most safe but cost is high.