Curve Steepener Trade

What is a '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.

RELATED TERMS
  1. Yield Curve Risk

    The risk of experiencing an adverse shift in market interest ...
  2. Bull Steepener

    A change in the yield curve caused by short-term rates falling ...
  3. Spot Rate Treasury Curve

    A yield curve constructed using Treasury spot rates rather than ...
  4. Treasury Note

    A marketable U.S. government debt security with a fixed interest ...
  5. Bear Steepener

    A widening of the yield curve caused by long-term rates increasing ...
  6. Term Structure Of Interest Rates

    The relationship between interest rates or bond yields and different ...
Related Articles
  1. Markets

    Understanding The Treasury Yield Curve Rates

    Treasury yield curves are a leading indicator for the future state of the economy and interest rates.
  2. Investing

    Trade Bond ETFs Using Yield Curves

    Different types of yield curves provide important insights for trading bond-based securities.
  3. Markets

    Understanding Treasury Yield

    Treasury yield refers to the return on an investment in a U.S. government debt obligation, such as a bill, note or bond.
  4. Managing Wealth

    Interest Rates And Your Bond Investments

    By understanding the factors that influence interest rates, you can learn to anticipate their movement and profit from it.
  5. ETFs & Mutual Funds

    Top 4 Treasurys ETFs (SHY, IEI)

    Learn about the specifics of the top four U.S. Treasury ETFs and how investors can buy ETFs that invest in bonds along the yield curve.
  6. Markets

    Will an Inverted Yield Curve Happen Again?

    Explore the causes of inverted yield curves, their frequency, their accuracy in forecasting recessions and whether this type of event can happen again.
  7. Managing Wealth

    How Bond Market Pricing Works

    Learn the basic rules that govern how bond prices are determined.
  8. Investing

    What’s the US Yield Curve Signaling?

    In recent weeks, the difference in yields between 10-year and 2-year U.S. Treasuries has hit post financial crisis lows, as evident in the chart below.
  9. Markets

    U.S. Recession Without a Yield Curve Warning?

    The inverted yield curve has correctly predicted past recessions in the U.S. economy. However, that prediction model may fail in the current scenario.
  10. Markets

    Understanding Term Structure of Interest Rates

    The term structure of interest rates is a common method of valuing bonds.
RELATED FAQS
  1. What is the difference between the Daily Treasury Long-Term Rates and the Daily Treasury ...

    Find out more about the daily Treasury long-term rates, daily Treasury yield curve rates and the difference between these ... Read Answer >>
  2. Where on the Internet can I find yield curves over various periods?

    Find out where to locate reliable yield curve information on the Internet, including the U.S. Department of the Treasury ... Read Answer >>
  3. Which economic factors impact treasury yields?

    Discover the economic factors that impact Treasury yields. Treasury yields are the benchmark yield for the rest of the world, ... Read Answer >>
  4. How can the yield curve help me make investment decisions?

    Learn about the yield curve, and discover why this chart is an important economic indicator. How do Treasury bond yields ... Read Answer >>
  5. What is the current yield curve and why is it important?

    Understand what the current yield curve represents, and learn how market analysts commonly interpret various changes in the ... Read Answer >>
  6. Why are treasury bond yields important to investors of other securities?

    Learn about the wide-ranging impact of U.S. Treasury Bond yields on all other interest-bearing instruments in the economy ... Read Answer >>
Hot Definitions
  1. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  2. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  3. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  4. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  5. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
  6. Omnibus Account

    An account between two futures merchants (brokers). It involves the transaction of individual accounts which are combined ...
Trading Center