The Federal Reserve is casting a long shadow over the world’s biggest bond market, derailing a classic recovery trade and underscoring how an era of central-bank intervention will reverberate for some time to come.

The mere hint that the Fed may take additional steps to hold down long-term rates is causing Treasury traders to scale back so-called “steepener” bets—bets that longer-term debt will underperform shorter-dated obligations, widening the yield spread between the maturities. It’s a tried-and-true strategy that has generated big profits over the years as economic rebounds pushed yields higher. Barclays Plc is keeping a lid on the size of its positions. Incapital is using options, rather than actual bonds, for a hedged—and more cautious—riff on the trade. And Nick Maroutsos of Janus Henderson Investors says some “could get flattened” by the wager.

 

Treasury & Risk

Join Treasury & Risk

Don’t miss crucial treasury and finance news along with in-depth analysis and insights you need to make informed treasury decisions. Join Treasury & Risk now!

  • Free unlimited access to Treasury & Risk including case studies with corporate innovators, informative newsletters, educational webcasts, and resources from industry leaders.
  • Exclusive discounts on ALM and Treasury & Risk events.
  • Access to other award-winning ALM publications including PropertyCasualty360.com and Law.com.

Already have an account? Sign In Now
Join Treasury & Risk

Copyright © 2023 ALM Global, LLC. All Rights Reserved.