Hi, if we start with an inverted yield curve (with a curvature like a “U”) the Barebell strategy will outperform if the curvature is decreasing (e.g. the body-central part of the yiled curve goes up and the short positions will gain).
The text book is rather saying that less curvature will always have a negative impact to the barebell strategy.
Maybe I’m wrong in how I think curvature looks like…
That is an interesting thought.
In the inverted yield curve as you have mentioned, a barbell strategy might have little to do with how the middle yield change right? So it might actually be immune to the rising yield, and “outperform” relative to a bullet maybe.
In that case, it is less curve for sure.
Thank you biwa.
yes i was wrong saying the below:
because there are no positions. On what we are aligned is that barebell will outperform a bullet in the inverted scenario.
An example:
Base scenario:
1y:5%
5y:2%
10y:7%
Scenario 1:
1y:5%
5y:5%
10y:7%
In this case Bullet 5y will lose money, Barebell will mantain. Barebell better than Bullet
Scenario 2:
1y:2%
5y:2%
10y:2%
In this case Bullet 5y will lose money, Barebell will gain on the 10y. Barebell better than Bullet
Pls correct (anyone) if I’m wrong
Thx!