What characterizes a credit barbell strategy?

A credit barbell strategy is characterized by investing in securities at both the short to mid-term and long-term ends of the maturity spectrum, while avoiding intermediate maturities. This approach typically involves buying short to mid-term corporate bonds alongside long-term government or treasury bonds. The rationale behind this strategy is to manage interest rate risk and credit risk effectively, as it allows an investor to capture yield from shorter-duration bonds while also taking advantage of the potential for capital appreciation from longer-duration assets.

In this context, the inclusion of long-term treasuries serves to provide stability and lower overall portfolio risk, given that they are typically less sensitive to economic fluctuations compared to corporate bonds, which can be subject to greater credit risk. By effectively balancing these different maturities, the investor aims to capitalize on market inefficiencies and potentially enhance returns while managing risk exposure.

The other choices are not representative of a credit barbell strategy. Solely investing in long-term bonds would not provide the necessary diversification or risk management, while focusing only on high-yield instruments neglects the inclusion of safer long-term assets. Finally, exclusively investing in government bonds would not capture the credit aspect of the barbell strategy, which is crucial for balancing higher-yielding corporate bonds with the stability offered