Curve Trade

A curve trade is a multi-legged position that expresses a view on the shape of the yield curve — its slope, curvature, or the relative value between specific maturities — while hedging out exposure to parallel rate movements.

Common curve trade types:

• Steepener: profits when the curve steepens (long the short end, short the long end). A trader who expects Fed rate cuts would put on a steepener.
• Flattener: profits when the curve flattens (short the short end, long the long end). A trader who expects aggressive rate hikes would put on a flattener.
• Butterfly: profits from changes in curvature between three maturities.

All curve trades are constructed duration-neutral: the DV01 of the long leg matches the DV01 of the short leg, so the trade has zero exposure to a parallel shift in rates. Profit comes only from the change in the targeted spread.

Curve trades are sized by their DV01 per basis point of spread change. For example, a 2s/10s steepener with $100 DV01 per leg earns $100 for every basis point the 2s10s spread widens.

The slopes tool charts historical spreads, enabling traders to evaluate current spread levels against historical context. The blog series on yield curve regimes documents how curve trades perform across different market environments.