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Unformatted text preview: with a flattening of the yield curve. Combinations of Yield Curve Shifts rr;:-&quot;&quot;~~~~' ~, '~'a:f~~Q[ft/F?!l&lt;:Qil'wt'!i!ttYJ? Bu~rfiy~ Yield Positive Butterfly----Maturity 3 Combinations of Yield Curve Shifts ~:;~~,SJ1,tf~~E&amp;i~~aii[~~ Yield Maturity Three Hypothetical Treasury Securities Bullet vs Barbell Bullet is 100% in C, so a 100 bps change in yield at 10-year maturity brings dollar change of $6.434 per $100 Barbell is 50.2% in A and 49.8% in B. Dollar Duration of Barbell = .50211&lt;4.004+.498*8.882 = 6.434 =&gt; Contribution to duration much higher at long end. Weighted convexity for Barbell is higher, so price is higher for same duration. Difference in yield is 25 bps so no change brings positive return for bullet. $0 what do we know about markets expectations about changes in yields given what they pay for convexity? 4...
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- Fall '11
- Yield Curve, Frank Jones