Yield Curve Inversion

CFA Level III Fixed Income
#1

Hi All,

If the yield curve is expected to invert would you want to increase your allocation to long term bonds?

I believe this is correct given if you buy the the higher duration bonds then as rates fall the price of those bond would increase.

Thanks.

#2

That’s true if long-term rates fall.

The yield curve could invert with the long end remaining fixed and the short end rising. In that case, buying long-term bonds won’t gain you anything. (It also won’t lose anything, while holding short-term bonds would lose a little.)

#3

Thanks for the perspective on short term rates just increasing relative to flat long end of the curve.

#4

My pleasure.