标题: Question on active management under yield slope scenarios [打印本页] 作者: orang3eph 时间: 2013-5-4 14:02 标题: Question on active management under yield slope scenarios
Expectation is as following:
positviely sloped yield curve with a decline in short rates of 25 bps and increase in long rates of 75 bps
With that said, what is the appropriate strategy: A) short duration bullet porfolio or B) long duration barbell
Answer: A) because the barbell will experience lower reinvestment rates longer longer than the bullet .. How is that? Can someone explain…
Thank you!!作者: TheMBAGlover 时间: 2013-5-4 14:04
the problem obviously was modeled from the example in the book except that the book provided the example with the same duration.
considering duration alone (i.e. parallel rate change), B having the longer duration will benefit more when rates decline or suffer more when rate rises
however, since the rates change is nonparallel, the bond portfolio with more time being exposed to reinvesment risk will have higher immunization risk
since the longer dur barbell has more time left to mature, it is still exposed to reinvesment risk
also bec the long rates increase, the longer dur barbell suffers more capital loss
(all in the CFAI readings, if you read closely)
