less curvature

问题如下：

Silvia Abram and Walter Edgarton are analysts with Cefrino Investments, which sponsors the Cefrino Sovereign Bond Fund (the Fund). Abram and Edgarton recently attended an investment committee meeting where interest rate expectations for the next 12 months were discussed. The Fund’s mandate allows its duration to fluctuate ±0.30 per year from the benchmark duration. The Fund’s duration is currently equal to its benchmark. Although the Fund is presently invested entirely in annual coupon sovereign bonds, its investment policy also allows investments in mortgage-backed securities (MBS) and call options on government bond futures. The Fund’s current holdings of on-the-run bonds are presented in Exhibit 1.

Over the next 12 months, Abram expects a stable yield curve; however, Edgarton expects a steepening yield curve, with short term yields rising by 1.00% and long-term yields rising by more than 1.00%.

Based on her yield curve forecast, Abram recommends to her supervisor changes to the Fund’s holdings using the following three strategies:

Strategy 1: Sell the 3-year bonds and use the proceeds to buy 10-year bonds.

Strategy 2: Sell the 5-year bonds and use the proceeds to buy 30-year MBS with an effective duration of 4.75.

Strategy 3: Sell the 10-year bonds and buy call options on 10-year government bond futures.

Abram’s supervisor disagrees with Abram’s yield curve outlook. The supervisor develops two alternative portfolio scenarios based on her own yield curve outlook:

Scenario 1: Sell all bonds in the Fund except the 2-year and 30-year bonds and increase positions in these two bonds while keeping duration neutral to the benchmark.

Scenario 2: Construct a condor to benefit from less curvature in the 5-year to 10-year area of the yield curve. The condor will utilize the same 1-year, 5-year, 10-year, and 30-year bonds held in the Fund. The maximum allowable position in the 30-year bond in the condor is $17 million, and the bonds must have equal (absolute value) money duration.

Edgarton evaluates the Fund’s positions from Exhibit 1 along with two of his pro forma portfolios, which are summarized in Exhibit 2:

Lastly, Edgarton reviews a separate account for Cefrino’s US clients that invest in Australian government bonds. He expects a stable Australian yield curve over the next 12 months. He evaluates the return from buying and holding a 1-year Australian government bond versus buying the 2-year Australian government bond and selling it in one year.

Based on Exhibit 1, which short position is most likely to be included in the condor outlined in Scenario 2?

选项：

1-year $338 million

5-year $71 million

10-year $38 million

解释：

A is correct.

To profit from a decrease in yield curve curvature, the correct condor structure will be: short 1s, long 5s, long 10s, and short 30s. The positions of the condor will be: short $338 million 1-year bond, long $71 million 5-year bond, long $38 million 10-year bond, and short $17 million 30-year bond.

This condor is structured so that it benefits from a decline in curvature, where the middle of the yield curve decreases in yield relative to the short and long ends of the yield curve.

To determine the positions, we take the maximum allowance of 30-year bonds of $17 million and determine money

duration. Money duration is equal to market value x modified duration divided by 100. 30-year bond money duration = $17 million × 19.69/100 = $3,347,300. The market values of the other positions are:

1-year bond: $3,347,300 × 100/0.99 = $338.11 million or $338 million

5-year bond: $3,347,300 × 100/4.74 = $70.62 million or $71 million

10-year bond: $3,347,300 × 100/8.82 = $37.95 million or $38 million