Bond Strategies

The Interest Rate Environment

You expect falling interest rates ( Increase Duration)

Sell short bonds with higher nominal yields

Buy long term bonds with lower nominal yields

The rational is that falling rates is good for bond investors and you want to be invested in the bonds that will increase the most in price when rates change.

You expect rising interest rates (Reduce Duration)

Sell long term bonds with lower nominal yields

Buy short bonds with higher nominal yields

The rational is that rising rates is bad for bonds and you want to be invested in the bonds that will decrease the least in price when rates change

Credit Risk and the Economy

You expect the economy to strengthen

Sell Treasuries or something similar and buy corporates

The rational is that corporate bonds will perform better in a good economy than Treasuries

You expect the economy to weaken

Sell Corporates buy Treasuries

The rational is that Treasuries will perform better than corporates in a weak economy