How to attempt this question… as in how to approach?
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It’s best if you take a pen and paper and draw the yield curve. Helps you visualize the entire thing that’s happening.
Till year 10, the yield curve shifts downwards by 5bp and the 30-year yield increases by 25bp. So, it’s clear that the curve becomes steeper. When the yield curve steepens, we’d prefer Bullet to Barbell.
In other words, we want less duration or exposure to the long end of the curve, since it’s going to increase by 25bp. Thereby, we’d prefer Portfolio 1 than the more barbelled portfolio, since it actually outperforms given a steepner