The Next Big Bond Trade: Fade the Flatness on Risk-Parity Pain
- Treasury futures show end-of-week surge in tactical steepeners
- Risk-parity deleveraging could trigger further spread widening
This article is for subscribers only.
The Treasury market’s longest flattening streak in more than six years is signaling to some that one of the best performing trades of 2017 has stretched too far, too fast.
Investors piled into tactical steepeners at the end of last week after the spread between the belly and long-end of the curve narrowed for 10 straight sessions. On Thursday, a trader executed large block trades in 10-year and ultra-long futures, creating a bet that’s poised to gain or lose $2 million for each basis point move in the yield gap. The wager was already about $6 million in the money by week’s-end. Friday’s open interest data showed a jump of 53,013 contracts in new risk across 10-year futures alone.