Do expected spot rates ALWAYS have to be BELOW current forward rates? Can they be above?
What i’m asking is… when riding the yield curve = does it only refer to going LONG on a bond? You cannot go short in “riding the yield curve” ?
Do expected spot rates ALWAYS have to be BELOW current forward rates? Can they be above?
Let’s tackle this independent of the riding yield curve strategy first. Expected spot rates is always below current forward rates when the yield curve is upward sloping. The vice versa is true - the spot rates will be above forward rates when the yield curve is downward sloping.
when riding the yield curve = does it only refer to going LONG on a bond? You cannot go short in “riding the yield curve” ?
Riding the yield curve implies getting a return beyond the implied yield from coupon payments and reinvesting those coupon payments. Stated differently, the strategy involves in attempting to earn return through capital appreciation from the rising price of the bond in relation to the implied yield, so I am afraid that the strategy is exlusive to going long on a bond in a market where the yield curve is upward sloping (i.e. the forward rates are all above the spot rates).