Bond Steepener Trade Using TLT and Short-Term Treasury ETF

about 2 months ago

Patrick Ceresna

"For example, you can use Harley-Bassman's Simplify Short-Term Treasury Futures ETF and pair that with options on the TLT, which is the iShares 20-plus-year Treasury Bond ETF. It lines up with a 4-to-1 ratio to balance duration between the 30-year and 5-year, backing Jim Bianco's view that rate cuts could paradoxically push long-term yields higher."

Patrick Ceresna outlines a trade that profits from a steepening yield curve based on the view that rate cuts, while intended to lower yields, may instead increase long-term yields in a higher inflation environment. The trade involves taking a position using options on TLT alongside a position in a short-term treasury futures ETF. Quantitative details include a current yield spread of approximately 121 basis points and a necessary duration balance of roughly 4:1, suggesting a tactical, tradeable setup for public market investors.

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