carry trade

问题如下：

Next, while researching relative value strategies, Mukilteo considers a government bond strategy that involves buying lower-liquidity, off-the-run bonds and selling higher-liquidity, duration-matched, on-the-run bonds.

The government bond strategy that Mukilteo considers is best described as a:

选项：

A.

carry trade.

B.

yield curve trade.

C.

long/short credit trade.

解释：

A is correct. Carry trades involve going long a higher-yielding security and shorting a lower-yielding security with the expectation of receiving the positive carry and of profiting on long and short sides of the trade when the temporary relative mispricing reverts to normal. A classic example of a fixed-income arbitrage trade involves buying lower-liquidity, off-the-run government securities and selling higher-liquidity, duration-matched, on-the-run government securities. Interest rate and credit risks are hedged because long and short positions have the same duration and credit exposure. So, the key concern is liquidity risk. Under normal conditions, as time passes, the more (less) expensive on-the-run (off-the-run) securities will decrease (increase) in price as the current on-the-runs are replaced by a more liquid issue of new on-the-run bonds that then become off-the-run bonds.

B is incorrect because Mukilteo considers a carry trade, not a yield curve trade. For yield curve trades, the prevalent calendar spread strategy involves taking long and short positions at different points on the yield curve where the relative mispricing of securities offers the best opportunities, such as in a curve flattening or steepening, to profit. Perceptions and forecasts of macroeconomic conditions are the backdrop for these types of trades. The positions can be in fixed-income securities of the same issuer; in that case, most credit and liquidity risks would likely be hedged, making interest rate risk the main concern. Alternatively, longs and shorts can be taken in the securities of different issuers—but typically ones operating in the same industry or sector. In this case, differences in credit quality, liquidity, volatility, and issue-specific characteristics would likely drive the relative mispricing. In either case, the hedge fund manager aims to profit as the mispricing reverses (mean reversion occurs) and the longs rise and shorts fall in value within the targeted time frame.

C is incorrect because Mukilteo considers a carry trade, not a long/short credit trade. In a long/short credit trade, valuation differences result from differences in credit quality—for example, investment-grade versus non-investment-grade securities. It involves the relative credit risks across different security issuers and tends to be naturally more volatile than the exploitation of small pricing differences within sovereign debt alone