“If the yield curve flattens, longer duration bonds should outperform shorter-duration bonds during the life of the flattening”
Does this make sense? If the yield curve flattens, that means that interest rates rises. If interest rates rises, bond prices decreases. Longer-duration bonds are more sensitive to interest rate increases than shorter-duration bonds so why would shorter-duration bonds outperform longer duration?
Generally we think of the yield curve being normal, upward sloping. Thus, if it flattens, the short end tends to rise and the long end to fall. Therefore, longer duration (longer maturity) bonds will likely appreciate whild shorter duration (shorter maturity) bonds will likely depreciate.
Thanks, that makes sense. How do you know so much? Not saying that you shouldnt but you seem very knowledgeable
Glad it makes sense.
As for knowing so much, I just practice a lot.