Key Rate Duration qn in 2011 mock morning profile, morning, 2011, interest, increase

luckygiftvn

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.

hariRaj

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

ramdabom

thanks for the insight summerside