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- Thread starter brian.field
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Thank you!

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My gut tells me it has some gong to do with the relationship between maturity and duration but it isn't ckear yet.

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#5

Let's simplify it. Two portfolios - both with same duration but one is heavily weighted in the 30 year bond. Longer bonds have higher duration so if curve steepens in the long end, the portfolio with the larger exposure to 30 year bonds (a 30 year key rate no?) will under perform vs the other.

I think that is it.

I think that is it.

Then under a yield curve flattening:

- The 30-year rate decreases more than, say, the 2-year rate. The manager's portfolio, which has the
*higher*30-year key rate duration, outperforms due to have a greater proportion of the portfolio "weighted" toward the 30-year rate exposure; or the other flattening: - The 30-year rate increases less than, say, the 2-year rate. This is an overall loss on the long position, but the manager's portfolio experiences a lesser decrease (ie, outperforms) than the benchmark due to being more weighted toward the 30-year rate and less weighted toward to the shorter rates that decreased more. I hope that's helpful and your weekend is going well!

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