What is Barbell Strategy? - ForumIAS

What is Barbell Strategy?

Central Government opted for what is known in financial markets as a “barbell” strategy – i.e. hedge first for the worst-possible outcome while progressing step-by step with a Bayesian updating of information.


The barbell strategy involves investors purchasing short-term and long-term bonds, but not intermediate-term bonds. The particular distribution on the two extreme ends of the maturity timeline creates a barbell shape. The strategy offers investors exposure to high yielding bonds with limited risk.

The first advantage of the strategy is that it enables investors to have access to higher yield long-term bonds. The second advantage is that it decreases risk. The strategy lowers risk as short-term and long-term bonds’ returns tend to be negatively correlated. So, when short-term bonds do well, the long-term bonds tend to struggle and vice versa. Thus, by holding bonds with different maturities, investors have less downside risk.

GaryVee,chamomileand4 otherslike this
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The initial total lockdown, therefore, should be seen as a hedge against the worst possible outcomes. This initial lockdown also gave the space to arrange a large-scale medical response in terms of equipment, quarantine and testing capacity.

As time has passed, the central government then unlocked the economy step-by-step as information as well as medical capacity both improved.

The same barbell strategy was used in the economic response. The Indian economic response during the lockdown phase was oriented more towards providing a cushion to the most vulnerable segments of society and of the business sector (such as MSMEs). 
Caesar,chamomileand4 otherslike this
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Very informative, thank you. The word "Bayesian" gave me undergrad psychology statistics flashbacks :sweat_smile:

upsc2020,
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Very informative, thank you. The word "Bayesian" gave me undergrad psychology statistics flashbacks :sweat_smile:

True that!

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