 |
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.
|
 |
Investopedia explains '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.
|
-
Few organizations can move the market like the Federal Reserve. As an investor, it's important to understand exactly what the Fed does and how it influences the economy.
Read More »
-
They may not be sexy, but bonds offer undeniable benefits to investors.
Read More »
|
|
