Looking for clarification on the BB Ex: 22 Reading 14 with reference to EOC Q#6
- Knowing that the yield spread will narrow or become negative prior to recession resulting in a flattened or inverted yield curve, I want to extend the duration of my bond portfolio because?
- Future short term rates are expected to fall
- Because declining output growth will lower loan demand, lowering rates, and increase bond prices?
- And monetary policy will move to lower rates, thus increasing bond prices?
- So buying the 6mo MTY vs. the 1mo MTY will be beneficial because the front of the curve will fall by more than the back of the curve?
- Future short term rates are expected to fall
Thanks for any feedback!