Referring to Reading 16 (Capityal market expectations), practice problem 6B, answer says
“Extending the duration of the bond portfolio will be profitable when the yield curve subsequently flattens or inverts”.
Now when the yield curve flattens, the yield at the long end of the curve falls (bond price increases), and inflation is likely to be less of a concern/interest rates are expected to fall. But can someone please explain why you extend duration when the yield curve flattens?