Curve Steepener Trade


DEFINITION of 'Curve Steepener Trade'

A strategy that uses derivatives to benefit from escalating yield differences that occur as a result of increases in the yield curve between two Treasury bonds of different maturities. This strategy can be effective in certain macroeconomic scenarios in which the price of the longer term Treasury is driven down.

BREAKING DOWN 'Curve Steepener Trade'

For example, an individual could employ a curve steepener trade by using derivatives to buy five-year Treasuries and short 10-year Treasuries. One macroeconomic scenario in which using a curve steepener trade could be beneficial would be if the Fed decides to significantly lower the interest rate, which could weaken the U.S. dollar and cause foreign central banks to stop buying the longer term Treasury. This decrease in demand for the longer term Treasury should cause its price to fall, causing its yield to increase; the greater the yield difference, the more profitable this strategy becomes.

  1. Maturity

    The period of time for which a financial instrument remains outstanding. ...
  2. Derivative

    A security with a price that is dependent upon or derived from ...
  3. Treasury Bond - T-Bond

    A marketable, fixed-interest U.S. government debt security with ...
  4. Federal Reserve System - FRS

    The central bank of the United States. The Fed, as it is commonly ...
  5. Yield Curve

    A line that plots the interest rates, at a set point in time, ...
  6. Yield

    The income return on an investment. This refers to the interest ...
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