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Answer: The sum of all forward bucket '01 shifts is equal to shifting the entire forward curve by 1 basis point.
## Explanation **C is correct.** This is the basic definition of forward bucket '01s. When all forward bucket '01 shifts are summed together, they represent a parallel shift of the entire forward curve by 1 basis point. **A is incorrect.** The sum of key rate '01s is equal to a parallel shift in the par curve, not in the flat yield to maturity. Key rate exposures measure sensitivity to changes in specific points along the yield curve. **B is incorrect.** Par curve effects are not spot curve effects. A shift in the 10-year par rate does not necessarily lead to higher spot rates for all maturities - the impact depends on the shape and dynamics of the yield curve. **D is incorrect.** The 30-year key rate shifts rates between 10 and 30 years, and thus has an effect on the cash flows of a 15-year coupon bond. Even though the bond matures in 15 years, its cash flows are affected by changes in the longer-term portion of the yield curve that influence discounting of those cash flows. This question tests understanding of key rate exposures and forward-bucket exposures in interest rate risk management, which are important tools for monitoring and hedging non-parallel term structure shifts.
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A fixed-income consultant is preparing a presentation advising corporate clients on the use of key rate 01's and forward-bucket 01's to monitor and hedge their interest rate exposures. Which of the following statements would be correct to include in the presentation?
A
The sum of all key rate '01s is equal to the change in price from shifting the yield to maturity by 1 basis point.
B
The key rate shift of the 10-year par rate leads to higher spot rates for all maturities.
C
The sum of all forward bucket '01 shifts is equal to shifting the entire forward curve by 1 basis point.
D
By choosing the key rates for the US Treasury as 2-, 5-, 10-, and 30-year par yields, a 15-year on-the-run US Treasury bond has no exposure to the 30-year key rate shift.
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