Question

Q.) If a hedge fund is short 3 yr bunds and long 15y bunds, DV01-neutral, what are the expecting to happen to the yield curve?

Short answer

Answer 1

Hedging against investment risk means strategically using financial instruments or market strategies to offset the risk of any adverse price movements. So, hedging, for the most part, is a technique not by which you will make money but by which you can reduce potential loss.

It is often the case that the yield curve inverts and portends a recession.

a. The yield curve always correctly predicts a recession in the case of inversion---it has never been wrong.

b. The yield curve can be used to infer changes in risk appetite of investors as long- and short- term rates shift.

c. The yield curve shows the yield of a fund of bonds for the largest 500 companies in the United States, much like the S&P 500 is an index for the stocks of the largest 500 companies in the United States

d. The yield curve shows yields on various maturities of US treasuries organized with increasing maturity on the x-axis and yields (return) of those treasuries on the y-axis.