Which bond duration is preferred when yield curve inverts

CFA Level III Economics
#1

dear all,

When the yield curve inverts over a one year period of time, such that the rate of 6-month bond become less than that of 1-month bond, is it better to roll the 6-month bond or 1-month bond?

Which bond will have higher return if it is rolled over the same one year period of time?

Thanks

#2

I guess the 6-month bond will have higher return as it locks in a higher rate for longer period of time, compared to 1 month bond.

#3

I would tend not to agree with Victoryeo

in a downward sloping scenario the 6 month has lower return.

for me an inverted curve means that shortterm pays more than longterm. Normal curve is upward sloping. so for me the best solution in such a downward scenario would be to actually not invest in bonds, stay liquid.

#4

when the interest rates are forecasted to go down as predicted by the inverted yield curve the biggest price impact is borne by the bonds that are long duration. Therefore when the rates go down the price of a long maturity bond will go up more than a short term bond.

that’s my take unless i misunderstood the question.

#5

this is the correct interpretation of the question and the right answer. thank you.