Key Rate Duration qn in 2011 mock morning

CFA Level II
#1

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.

#2

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

#3

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.

#4

thanks for the insight summerside

#5

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.

#6

yup