Barbell Strategy
Barbell Strategy | Definition
A bond investment strategy in which the maturities of the securities included in the portfolio are concentrated at two extremes. A typical barbell strategy involves selecting only bonds with short and long term maturities. The maturity structure of the portfolio can be lengthened or shorted by varying the amount of securities on either end of the maturity range.
Using this approach requires constant attention from the portfolio manager. Bonds with short maturities need to be rolled over into new short term securities as they reach maturity. As long term bonds reach middle maturity, they have to be rolled over into new long term securities.
One downside to a barbell strategy is its transaction costs. In addition, long term bonds are much more sensitive to interest rate changes. Therefore, the long maturity side of the portfolio tends to have greater volatility than the short maturity side.
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