Assume newly issued 30-year-on-the-run bonds sell at higher yields (lower 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 they are selling one bond and buying another bond with a nearly identical duration. This means that the hedge fund is not taking a position on the direction of interest rates.

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