Why does riding the yield curve strategy produce higher returns than a maturity matching strategy for bonds? I’m so lost on this concept and spent nearly the past hour and a half trying to find some sort of graphic visual/chart/diagram/etc. that can explain the nature of this strategy.

As I understand it, as the bond nears maturity, the shorter maturity bonds have lower yields, but how does rolling down the curve explain this? and which way am I rolling if I’m looking at a chart with yields on the y-axis and maturity on the x-axis?

The assumption is that the yield curve doesn’t change and that the curve is upward sloping (steep). Say 1y yields are 1%, 2y are 2%…9y at 9%, 10y at 10% and the curve is a par curve. You buy the curve, i.e.10y bond yielding 10%. After a year, it becomes a 9y bond yielding 9% which gives you a capital gain of 1% and a coupon of 10% which is better for you.

Not to put too fine a point on it, but your capital gain is only _ 0.6% _: a 9-year, 10% coupon (annual pay) bond yielding 9% sells for $1,060, not $1,100.