Question on an MM mock exam that I’m having trouble with regarding butterfly trades
Slope Current 12 month Expected
2yr-5yr 68 bps 68bps
2y-10yr 146bps 116 bps
2yr-20yr 163 bps 163bps
-Looking at the spread, the 10yr yield is dropping, and there’s less curvative, therefore you want to long the bullet, and short the barbell.
The question was “Construct a duration neutral trade”.
I said positive butterfly trade because i was under the impression that a positive butterfly trade is long bullet, short barbell. However, the answer is a negative butterfly trade. The answer is also stating that a negative butterfly trade is long bullet, short barbell.
Can someone please clarify the action of a negative and positive butterfly trade?