Hello,The following was taken from a primer on swap spreads from MS."In an upward sloping yield-curve environment, a high coupon bond normally has a lower modified duration than a low coupon bond. Taking an extreme example to illustrate the problem, consider the 4% and 11¼% Feb ’15 US Treasuries. The low coupon bond has a modified duration of 7.955, while the high coupon bond has a modified duration of 6.7. If the yield curve steepens, we would expect the yield to rise further on the low coupon bond than on the high coupon bond. Hence selling this bond and buying the high coupon bond in duration-neutral amounts will leave us with a steepening exposure in much the same way as if we were to buy an 8-year bond and sell a 10-year bond."Can someone explain to me for instance if you own a 10 year bond why you would have any steepening exposure (I understand this for swaps because of the float leg). I thought if you own a bond your only exposure would be to the specific bonds YTM and not any steepening or flattening of the curve. In the example above can't the yield curve steepen and neither of these bonds move/change in px?I was also curious as to why duration would depend on the shape of curve.Thanks,

One word for you: Tuckman!

A bond yield is a weighted average of the zero coupon yields on the bond's cash flow dates. So you have exposure to a lot of points on the curve. For a treasury, the most important point is the one that corresponds to the principal repayment.To take an extreme example, compare a bond that pays coupons with a zero-coupon bond. Both mature in 10 years. If the 0s-10s curve twists upward by 5 bps, the yield the zero-coupon bond obviously rises by 5 bps. But the yield of coupon bond has to rise by less than 5 bps because none of the underlying zero coupon bonds have risen by more than 5 bps.

My assumption was that "yield curve" referred to the YTM curve, hence if the yield curve steepens 10y bonds don't necessarily move. It could be just the front end bonds moving. However, if they're referring to the zero/spot curve this would make a lot more sense. Is there any way to distinguish what they're talking about in the future. "Yield curve" to me is a pretty ambiguous term.