Lenny D. answered • 05/08/19
Tutor
4.8
(563)
Financial Professional with many years of Wall Street Experience
Duration is the elasticity of a bond price with respect to yield, With a zero coupon bond it is constant with a coupon bond it will change as YTM changes.. If you are long Coupon Bonds and Short Zero coupon bonds in a duration neutral portfolio as Yields fall you get long duration and make money. If yields rise you get short duration and make money. This is sometimes called being "long convexity"
Lenny D.
I actually got this backwards. If you long zero coupons and short coupons you are long convexity.. Just reverse everything I said above. I haven't had my coffee yet05/08/19