Consider two people (Alice and Bob) who have some money each month to save and invest in government bonds of their own country (because they want it to be liquid, and have the smallest risk of default).
Alice will always invest and reinvest her money in the lowest yield bond available.
Bob will always invest and reinvest in bonds with the highest yield.
Both of them willing to swap bonds when an owned bond's bid yield is smaller than another bond's ask yield (so they won't lose on the swap) and the swap brings the yields to the desired direction. So lower for Alice and higher for Bob.
Now here is my dilemma:
In normal circumstances Alice will invest in short term bonds and stay near the current interest rate levels all the time. During the rare yield curve inversion events, Alice will buy long term bonds as her short term bonds mature gradually all her investment go to the long term zone till the inversion persists, locking in high yields for a long time. Alice rarely have the opportunity to swap, because her bond mature quickly.
Bob normally keep buying long term bonds. So his money generally yield much higher than the current interest rate levels. But if interest rates rise his old investments are locked in can't be swapped out, and may fall below the current interest rates. When the yield curve becomes inverted, then he can switch to short term bonds which yield a lot during that times, this time he can win some on the swaps and all his investments become refreshed on a high rate when the yield curve again turn back to normal.
So which strategy provides higher returns in the long run (eg. when done for 10-20 years till retirement)? So far I'm playing Bob's but it's not too late to change if evidence suggests Alice's way is better.