They show an inverted yield curve - fine. The question for 6b, where they ask "for a one-year holding period extending from 1 March 2010 to 1 March 2001, determine the relative values of buying a 6 month security now and then another in 6 months, or purchasing a one-month security and then rolling that security each month at the then prevailing yield.
The answer is “rolling over 6 months would provide superior results. Extending duration of the bond portfolio would be profitable when the yield curve flattens or inverts”.
Can anyone explain further? Is this simply saying - flatter yields in 6 months compared to 1 month, so lower rates and therefore higher bond prices? If so I’m not really getting it because in the table the 6 month rates are still a bit higher?