Hedge funds turn to curve options for steepener trades

Previous bets on US interest rate curve flopped following unexpected flattening

yield curve 2

Hedge funds are placing billion-dollar trades in curve interest rate options as they bet on whether the yield curve between the two-year rate and 10-year rate will steepen, according to three major banks.

The basis between both points on the US Treasury curve has tightened aggressively since the start of the year and now stands at 22.4 basis points. That contrasts starkly with data from a year ago, which shows the basis at 86.3bp.

“We’ve seen a lot of curve options trading now that the curve

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