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Build a positioning strategy from forward rates when the manager's rate outlook agrees with what the market implies

CFA® Level III · Portfolio Management Pathway · Yield Curve Strategies · L3.PM.5.b

The idea

With no view that differs from what the curve already prices, the manager does not bet on level, slope or shape and instead positions to earn the curve's static return. Strategies include buy-and-hold at a target duration; rolling down an upward-sloping curve by holding bonds whose yields fall as they age; repo-financed carry trades that borrow short to hold higher-yielding longer bonds; long futures or receive-fixed swaps as leveraged equivalents; and selling options, such as covered calls, to collect premium. These gains depend on the curve staying roughly where it is. The trap is forgetting what forward rates mean: if forwards are realised exactly, every maturity earns the same one-period rate, and the extra return from rolldown and carry disappears.

In the app: 1 practice questions on this outcome, a narrated walkthrough with diagrams, spaced review that brings it back before you forget it.

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