Yield Curve Strategy for Declining Interest Rates

Very Easy Managing Fi Portfolios Yield Curve Strategies

John is a fixed income portfolio manager who is analyzing the current interest rate environment to determine the best strategy for managing his bond portfolio. He believes that interest rates will decline over the next year, which would impact the yield curve. Given this outlook, John considers different yield curve strategies to optimize his portfolio's return.

What yield curve strategy should John implement to capitalize on his forecasted decline in interest rates?

Invest in short-term bonds to reduce duration risk.

Implement a barbell strategy with both long-term and short-term bonds.

Invest in long-term bonds to maximize price appreciation.

Hint

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