The par yield curve for U.S. Treasury bonds is currently flat across all maturities at 5.50 percent. You have observed following "paired" transaction by your bond portfolio manager:
| Bond |
Transaction
|
Credit Type Spread (bp)
|
Maturity (yrs.)
|
Coupon Rate (%)
|
Modified Duration
|
|
G
|
Buy
|
U.S. Govt. -
|
15
|
0
|
14.599
|
|
H
|
Sell
|
Corporate 100
|
7
|
8
|
5.386
|
Briefly discuss what this paired trade suggests to you about the manager's implied view as to: (1) the general direction of future interest rate movement, (2) the future shape of the par yield curve, and (3) the future level of corporate bond credit spreads.