With the yield curve expected to steepen, there are a few strategies that may be unfold by investors. Article originally published at Master Investor Magazine December 2019 Issue 57 p.34-39.
A curve-steepener strategy consists of setting a trade with derivatives to benefit from escalating yield differences between two Treasury notes of different maturities. The trade usually consists of trading a spread of futures contracts, under which a short-term Treasury note is bought, and a long-term Treasury note is sold, at the same time and in appropriate proportions such that the trader is insured against parallel shifts of the yield curve. Besides trading futures, there is also the option of using ETFs to create the spread. All that is needed is to find an ETF composed of long-term bonds and another composed of short-term bonds. However, there are even simpler options, where the trader buys just one instrument and gets the desired exposure.
To learn more about the steepening trade, please read my full article at Master Investor