Butterfly Strategies for Yield Curve Shape Changes
Which of the following is accurate regarding a fixed-income position that is classified as a money-duration neutral butterfly with "long wings"?
No.
Convexity is purchased with this position.
That's not it.
A parallel shift upward in the yield curve would have a negligible effect since the position is money-duration neutral.
Bingo!
This butterfly is a combination of a long barbell and a short bullet, which nets to adding (or purchasing) convexity. It won't be affected much by a yield curve shift but will benefit from a flattening of the curve and lose if there is a steepening.
Convexity is being sold
A yield curve increase would cause a loss
The position will benefit from a yield curve flattening
