You would like to start investing in the bond markets and your investment horizon is 2-years. In view of the current extremely low interest rate environment, you expect the U.S. government yield curve will shift up by 100 basis points (parallel shift) in the first year, with the other parallel shift up of 100 basis points in the second year. How are you going to profit from bond investment amid rising interest rates? Recommend three strategies.
• You might consider any kind of fixed income instruments, including bond derivatives.
• You might make reasonable assumptions regarding other economic conditions.
• For each strategy suggested, discuss the potential return, risks, merits and demerits for a Hong Kong investor.