Hi Sanjay Sir,
In Yeild Curve strategies,
I have observed that in parallel shift if we create a long short position in bonds making it duration neural, a rise or fall in the yeild will result in 0 gain/loss however due to convexity we have have some minor effect.
But I am not able to understand the impact of making duration neutral portfolio in case of change in yeild slope, through example 7 I can see either it will be net loss or gain but how duration neutral is contributing to it?.
I have attached the explanation mentioned in the core, can you explain that in simple terms?
After read further into the core this is my observation so far:
” If we are making long-short Duration Neutral Portfolio and there is Bear Steepner, so whatever gain that we will realise will be due to change in slope (i.e. difference between long term yield and short term yield) and no gain or loss will be there because of change in level as we have made a duration neutral portfolio”
“Also if we are not sure as to what will be the change in the long and short term yeild, we should always go for Duration neutral portfolio”
Can you confirm if my understanding is correct?
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