Advantages and disadvantages of curve , Financial Accounting

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You would like to start investing in the bond markets and your investment horizon is two years.  In view of the current extremely low interest rate environment, you expect the U.S. government yield curve will shift up by 100 basis points (parallel shift) in the first year, with another parallel shift up of 100 basis points in the second year.  How are you going to profit from bond investment amid rising interest rates?  Suggest three strategies.

  • You may consider any type of fixed income instruments, including bond derivatives.
  • You may make reasonable assumptions about other economic conditions.
  • For each strategy suggested, discuss the potential return, risks, advantages and disadvantages for a Hong Kong investor.

 


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