Key Rate Duration qn in 2011 mock morning

Key Rate duration profile for treasury bond portfolio:

Key Rate Portfolio A Portfolio B Portfolio C 3 mths 0.3 0.2 0.9 2 yrs 0.4 0.2 0.9 5 yrs 0.4 2.3 1.1 10 yrs 3.6 0.3 0.9 20 yrs 0.5 0.3 1.0 30 yrs 0.4 2.3 0.8

Which portfolio will perform worst if interest rates increase in a positive butterfly twist fashion.

Shouldn’t the answer be portfolio C since it has high key rate duration for shorter and longer term maturity bonds and is otherwise known as barbell portfolio.

this is always tricky when they are talking about Butterflly movements since you don’t know the extent of the butterfly. In a butterfly, the very begining and the very end of the curve are the most affected so let’s assume that rate 3 months and 30 years are the most affected, then it would be portfolio B the most affected since 2.3+0.2 is bigger than 0.8+0.9

B looks more like a barbell to me: high numbers at 5 years (short) and 30 years (long). i suppose it could have been more obvious if 2.3 was at 2 yrs.

thanks for the insight summerside

Thanks everyone. I think the key here is to understand 5 years as short and 30 years as long.

After reviewing the notes again, I think another way to look at it will be that A is more of a bullet, B is more barbell and C is more ladder.