Barbell strategy

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Barbell strategy

A fixed income strategy in which the maturities of the securities included in the portfolio are concentrated at two extremes.

Barbell Strategy

An investment strategy whereby a portfolio consists predominantly or exclusively of bonds with very short and very long maturities. The investment strategy behind a barbell portfolio is to invest in high-yield bonds with long maturities to maximize return while also maintaining investment-grade bonds with short maturities to minimize risk and maximize liquidity.

Barbell strategy.

When you use a barbell strategy, you invest equivalent amounts in short-term and long-term bonds, creating the shape that gives the strategy its name. The goal is to earn more interest than intermediate-term bonds would provide without taking more risk.

For example, you might buy a portfolio of bonds, with some that mature within a year or two and an equal number that mature in 30 years. When the shorter-term bonds come due, you replace them with other short-term bonds.

It's a different approach from laddering your bond investment, often with a portfolio of intermediate-term bonds, so that your bonds mature in a rolling pattern every few years.

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In conclusion, CS First Boston senior corporate bond strategist, market research, Nasser Ahmad, recommended three themes for 1995 -- 1) sector selectivity -- defense, forest products, metals and autos to name four; 2) structures -- discount callables, thirty put ten securities and barbell portfolios of two and twenty year securities; and 3) overweighting industrials and yankees in the CSFB model portfolio.