Assume newly issued 30-year-on-the-run bonds sell at lower yields (higher prices)than 29 ½ year bonds with a nearly identical duration.A hedge fund that sells 29 ½ year bonds and buys 30 year bonds is taking a _____.

Question

Quizplus · Accepted Answer

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

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