Let’s take a look at the flattening trade over two different segments at the long end of the yield curve: the one between five and 30 years and the one between 10 and 30 years. The Trade War Has Sent The Yield Curve To Its Flattest Since 2007. For the best experience on our site, be sure to turn on Javascript in your browser. The underlying concept of a flattening yield curve is straightforward. An example of an instance where the yield curve appears steeper can be seen in a two-year note with a 1.5% yield and a 20-year bond with a 3.5% bond. Under this strategy, the trader or portfolio manager would short sell the 10-year treasury and simultaneously buy long the 30-year bond. The yield curve flattener has been one of the few consistent winners over the last few months. If the yield curve steepens, this means that the spread between long- and short-term interest rates increases—i.e. A strategy that is employed by many such participants is “the flattening trade”. For more information on the New York Institute of Finance, visit the homepage or view in-person and online finance courses below: 90+ years of essential education for finance professionals delivered by leading industry experts. Additionally, whereas I used the cash treasury market to illustrate this potential opportunity, it can be utilized in other markets as well, specifically the futures market. A bear steepener is the widening of the yield curve caused by long-term rates increasing at a faster rate than short-term rates. This should cause the yield curve to “flatten out” (see the illustration below). The difference between the short-term and long-term yield is known as the yield spread. When the yield curve is steep, banks are able to borrow money at a lower interest rate and lend at a higher interest rate. The Excruciating Choice Governments face an “excruciating choice” between “flattening the (coronavirus) curve” by imposing quarantines and lockdowns and the huge, unprecedented economic impact on the world economy that is already in recession. yields on long-term bonds are rising faster than yields on short-term bonds. You will learn how to determine fair values, yields and risk measures for a wide variety of instruments including government bonds, corporate bonds, mortgage securities, and fixed income derivatives. A humped yield curve is a relatively rare type of yield curve that results when the interest rates on medium-term fixed income securities are higher than the rates of both long and short-term instruments. As Matt goes on to point out, having a hedge against a “stress-loss” that involves the indices could well mean having a curve trade. NOB? One of the benefits of this is the utilization of margin to further enhance risk/reward opportunities. With a history dating back more than 90 years, the New York Institute of Finance is a global leader in training for the financial services and related industries with course topics covering investment banking, securities, retirement income planning, insurance, mutual funds, financial planning, finance and accounting, and lending. An article by the New York Institute of Finance Yield Curve Analysis instructor Bill Addiss. The curve may continue to flatten or invert, with or without a trade deal. For investors in the curve-steepener trade, the updraft in Treasury yields of the past 48 hours is more than just a welcome reprieve -- it also signals a long-awaited regime shift. “The only trade to have on in the marketplace is the yield-curve flattener,” said Tom di Galoma, managing director of government trading and strategy at Seaport Global Holdings. 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