Assume newly-issued 30-year on-the-run bonds sell at higher yields (lower prices) than 29½-year bonds with a nearly identical duration. A hedge fund that sells 29½-year bonds and buys 30-year bonds is taking a

Question

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The hedge fund is taking a market neutral position because the two bonds have nearly identical durations, so the fund is not exposed to interest rate risk.

Assume Newly-Issued 30-Year On-The-Run Bonds Sell at Higher Yields (Lower