What is the primary focus of a yield curve strategy?

The primary focus of a yield curve strategy is to generate return based on expectations of the level, slope, and curvature of the yield curve. This reflects an active investment methodology, where portfolio managers seek to capitalize on anticipated changes in the yield curve.

In this context, the level refers to the interest rates across all maturities at a given point in time, the slope denotes the differences in yields between various maturities (i.e., how steeply the yield curve rises), and curvature pertains to the shape of the curve itself, which can indicate market expectations of interest rate movements. By taking positions that benefit from these characteristics, investors aim to optimize their returns based on economic forecasts and interest rate predictions.

A strategy focused on maintaining constant cash flow would not inherently involve manipulating positions along the yield curve for capital appreciation but rather prioritize stability. Similarly, maximizing short-term interest would not consider the broader context of yield curve movements but would solely focus on short-term rates. Lastly, minimizing bond duration implies a strategy to reduce interest rate risk rather than actively engaging with the complexities of yield curve dynamics, potentially sacrificing returns that can arise from it.

Thus, option B accurately captures the essence of yield curve strategies in terms of investment objectives.