Duration vs. Yield Curve Positioning

I thought they were the same but my manager (embarrassingly) pointed out they were different.

My guess at the difference is duration positioning means to go long or short the entire curve relative to the benchmark. While yield curve positioning is selecting individual rates along the curve to go long and short relative to the benchmark.

Correct?

Duration is the cummulative effect of your yield curve positioning. It measures interest rate sensitivity to a instantaneous one-time, parallel shift in the yield curve. But that’s not even close to showing the whole picture, because yield shifts are almost never parallel. An actual bond portfolio is taking more than a single duration position. You can match benchmark overall (effective) duration while still taking active duration positions at various points in the yield curve.

We also talk about our yield curve trades when discussing yield curve positioning. For example, last year we believed the yield curve was going to flatten so we shorted the 2 yr and bought the 30 yr, but the trade was duration neutral. Yield curve positioning can mean a lot.

I think some people might also refer to sensitivity to certain spot rates as a kind of “duration”, i.e. “key rate duration” or “spot rate duration”. So, it’s unclear if you were actually incorrect. The important thing is that there is mutual understanding about the concept that you are discussing.

I’m not a FI guy, so I waited to float my view, but I think this sort of sums it up: For an individual straight bond with no embedded options, duration and yield curve position are pretty much or less the same (although if you want to get more nuanced, the coupon size affects the yield curve position a bit too, and that has a big impact on things like amortizing bonds or mortgages). Yield curve positioning with respect to a bond *portfolio* is really about how your portfolio’s asset durations are spread out along the curve. Is it a bullet or a barbell or a ladder? Yield curves rarely shift in parallel, so yield curve positions are basically structures that are designed to take advantage of or hedge views on slope changes, twists, etc.