RT Journal Article SR Electronic T1 Butterfly Trades JF The Journal of Portfolio Management FD Institutional Investor Journals SP 87 OP 95 DO 10.3905/jpm.1999.319777 VO 26 IS 1 A1 Robin Grieves YR 1999 UL https://pm-research.com/content/26/1/87.abstract AB Investors who want to sell rich securities or buy cheap securities and maintain their portfolio durations often employ butterfly trades. A butterfly trade typically uses three securities of different durations. The shortest and longest-duration instruments are the wings; the middle-duration instrument is the body. There are multiple ways to structure butterfly trades. For example: cash and duration-neutral weighting, fifty/fifty weighting, and regression weighting. The author notes that it is unfortunate that the term “weighting” appears in two entirely different contexts of butterfly trades. The first use is how to structure a trade. The second is how best to measure yield spreads. Despite the well-known shortcomings of yield to maturity as a predictor of total rate of return, the author uses yield spreads and changing yield spreads to try to predict total returns to butterfly trade positions. Different spread weighting methods can be evaluated on how well they correlate with realized returns.