References for Bullet and Barbell Yield-Curve Strategies

Summary

The document points readers seeking to understand bullet and barbell bond positioning toward literature on yield-curve analysis, convexity bias, and methods for assigning portfolio weights. It names a detailed treatment by Antti Ilmanen and a Lehman Brothers report on whether convexity can be exploited, then suggests Bruce Tuckman's fixed-income text for regression-based weighting and two reports on principal components and interest-rate PCA for PCA-based weighting.

These are research leads rather than an explanation of how to construct or compare the strategies. The post provides no formulas, worked examples, empirical findings, or discussion of real-dollar versus fast-dollar measures. Readers would need to consult the cited works to assess assumptions, implementation, and evidence; the document itself does not establish that either portfolio shape is superior or that convexity opportunities are exploitable.

Key ideas

• The post directs readers to literature on yield-curve convexity and bullet-versus-barbell analysis.
• It recommends regression-based weighting references for fixed-income portfolio construction.
• It identifies principal-components analysis as another approach to weighting interest-rate exposures.
• The post supplies references rather than methods, calculations, or evidence for choosing a strategy.

Tags

# Anyone have good literature on buying bullet vs barbell returns?


# Anyone have good literature on buying bullet vs barbell returns?












I am trying to understand the concept, weighting schemes, real\$ vs fast\$ view, etc... On the desk today, I used some third party tool to run analysis on some trade ideas but I'm blindly running numbers based on different horizon yields. I would like to understand the process more.

## Answer by Helin (score 3)

https://quant.stackexchange.com/a/36801

A very detailed treatment can be found in Antti Ilmanen's "Understanding the Yield Curve: Part 5 - Convexity Bias and the Yield Curve." This piece of pretty easy to find on the Internet.

Another wonderful report is "Can Convexity Be Exploited" (Lehman Brothers Quantitative Portfolio Strategy 2006).

For regression-based weighting, refer to Bruce Tuckman's Fixed Income Securities.

For PCA-based weighting, refer to "Principles of Principal Components" (Salomon Smith Barney 2000) and "PCA for Interest Rates" (Morgan Stanley 2005).

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.