• The position was established on 11 February 2014, see link
• On 9 April 2014 more risk was added to the position, see link
• On average we book a minor profit of 3bp on the entire position, see page 2
Curve flattener no longer attractive after the decline in rates
Following the decline in US rates in early 2014, we saw value in being positioned for higher rates and a flatter US curve in the 2Y-3Y segment. This view was expressed through paying USD 1Y1Y versus receiving 2Y1Y in a 2-to-1 BPV ratio.
At entry the position had a positive roll-down, but that changed for the worse as rates moved higher during February and March. To reduce these headwinds and still keeping the trade open, we chose to add some risk to the 2Y1Y receiver leg in early April such that the BPV ratio was 1.5:2 rather than 1:2.
Since then, rates have declined and the curve has flattened somewhat, benefiting the position. The p/l moved from being significantly negative to being moderately positive. As a consequence of this we close the trade, since we no longer see value in the curve flattener following the decline in US rates over the past month.
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