---
description: "A bullet portfolio concentrates all bond holdings at a single target maturity, used to express a directional view on interest rates at a specific point on the yield curve."
tags: [fixed-income, duration, bullet, yield-curve]
---

# Bullets

**Section**: 5.2 | **Asset Class**: Fixed Income | **Type**: Duration / Directional

## Overview
In a bullet portfolio all bonds share the same maturity date T, targeting a specific segment of the yield curve. The strategy expresses a view on the direction of interest rates at that maturity. Bonds are typically purchased over time to mitigate timing risk from rate fluctuations.

## Construction / Mechanics
- Select a target maturity T based on the trader's interest rate outlook.
- Purchase bonds of that maturity, potentially accumulating positions over time.
- Hold to maturity or until the rate view is realized.

Purchasing over time mitigates interest rate risk: if rates rise, later purchases capture higher yields; if rates fall, earlier purchases lock in higher yields.

## Payoff / Return Profile
- **Rates expected to fall** (bond prices rise): pick a longer maturity — longer bonds gain more in price from a given yield decline (higher duration).
- **Rates expected to rise** (bond prices fall): pick a shorter maturity — shorter bonds lose less.
- **Uncertain outlook**: diversify across maturities (barbell or ladder preferred).

## Key Parameters / Signals
- Target maturity T: the single maturity determining duration exposure
- Modified duration: scales with T; determines price sensitivity to rate changes
- Interest rate forecast: the primary signal driving maturity selection

## Variations
- Building the portfolio gradually over time to average in across different rate environments.

## Notes
- Concentrating at one maturity creates pure duration exposure with no convexity advantage.
- Compared to a barbell with the same duration, a bullet has lower convexity, meaning it is more exposed to parallel yield curve shifts.
- Suitable when the trader has a strong directional view on a specific maturity segment.