Yield Curve Strategy for Flattening Curve

Hard Managing Fi Portfolios Yield Curve Strategies

During a recent meeting, a fixed income portfolio manager discussed potential strategies to adjust the portfolio's exposure to interest rate movements. They noted that the current yield curve is upward sloping, with short-term rates significantly lower than long-term rates. The manager is considering implementing a yield curve strategy that capitalizes on the expected flattening of the yield curve over the next year. Which of the following yield curve strategies should the portfolio manager prioritize to achieve this goal?

A barbell strategy, which involves investing in both short-term and long-term bonds while avoiding intermediate maturities.

A bullet strategy focusing on intermediate maturities to capture the steep yield spread.

Prolonging duration by investing primarily in long-term securities to benefit from potential price gains as rates decline.

Hint

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