What is a flattener trade?

What is a flattener trade?

One active trading strategy to take advantage of this scenario is to engage in what is referred to as a “flattening trade”. Under this strategy, the trader or portfolio manager would short sell the 10-year treasury and simultaneously buy long the 30-year bond.

What causes a bull Steepener?

A bull steepener occurs when the Fed Reserve is expected to lower interest rates. This expectation causes consumers and investors to become optimistic about the economy and bullish about prices in the stock market over the short term.

What causes bear flattener?

Key Takeaways. Bear flattener refers to the convergence of interest rates along the yield curve as short term rates rise faster than long term rates and is seen as a harbinger of an economic contraction.

What is a flattener?

Noun. flattener (plural flatteners) Anything that flattens. (finance) A trade whose terms are based on the assumption that the rate of return will decrease.

Why is it called a bull flattener?

Long-term rates declined faster than short-term rates, so it was a bull flattener.

How does a Steepener work?

A steepener functions as an interest rate swap, which is a derivative contract between two parties wherein one agrees to pay the other a fixed interest rate in exchange for receiving a floating interest rate that is based on the difference between the long and short term rates.

What causes bull flattener?

A bull flattener is often driven by falling interest rates, which directly increase bond prices and returns in the short run. However, higher bond prices mean lower yields and lower returns for bonds in the future. It is precisely those lower anticipated returns for bonds that drive investors into the stock market.

What is a Steepener trade?

What Is a Curve Steepener Trade? A curve steepener trade is 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.

What is flattener used for?

Field flattener lenses in binoculars improve edge sharpness and lower the distortion. Field flattener lenses counteract the Petzval field curvature of an optical system. In other words, the function of a field flattener lens is to counter the field-angle dependence of the focal length of a system.

What is a bear Steepener?

A bear steepener is the widening of the yield curve caused by long-term interest rates increasing at a faster rate than short-term rates. A bear steepener is usually suggestive of rising inflationary expectations–or a widespread rise in prices throughout the economy.

What is a Steepener note?

A steepener note (or steepener) is a complicated financial instrument that allows investors to speculate on the shape of the interest rate curve and profit if it steepens rather than remaining flat. Steepeners involve considerable risk and are only appropriate for investors seeking such risk.

What is a bear steepening?

Key Takeaways. A bear steepener is the widening of the yield curve caused by long-term rates increasing at a faster rate than short-term rates. Bear steepener commonly occurs when investors are concerned about inflation or a bearish stock market in the short-term.

What is a steepening trade?

A steepening yield curve indicates that investors expect stronger economic growth and higher inflation, leading to higher interest rates. The curve steepener trade involves an investor buying short-term Treasuries and shorting longer-term Treasuries.

What does 2s5s mean?

Such a comparison will often be referred to as “2s5s” and is measured in basis points (bps) by subtracting the shorter term yield from the longer term yield. So if one says “2s5s are trading at +225” this means that the yield on 5 year bonds is 2.25% higher than the yield on 2 year bonds.

Why do you need a field flattener?

What is 2s5s10s?

2s5s10s – an alternative ‘recession indicator’ When 5-year is high relative to 2-year and 10-year yields, the curve is humped-shaped, and the 2s5s10s is high. For example, when 5-year yields are ‘relatively’ low, because markets price in a rate cutting cycle, 2s5s10s is low.