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#asset-swap #finance #gale-using-and-tradning-asset-swaps
If the yield curve steepens, we would expect the yield to rise further on the low coupon bond than on the high coupon bond
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owner: piotr.wasik - Using and Trading Asset Swaps - Giles Gale (Morgan Stanley), p5

w coupon bond. Taking an extreme exam ple to illustrate the problem, consider the 4% and 11¼% Feb ’ 15 US Treasuries. The low coupon bond has a modified duration of 7.955, while the high coupon bond has a modified dur ation of 6.7. <span>If the yield curve steepens, we would expect the yield to rise further on the low coupon bond than on the high coupon bond. Hence selling this bo nd and buying the high coupon bond in duration-neutral amounts will l eave us with a steepening exposure in much the same way as if we were to buy an 8- ye



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