U.S. Treasury yield curve bets: Can the spread between the 2-year and 10-year maturities return to 40 basis points?

【Crypto World】Recently, the strategy team at TD Securities came up with an interesting U.S. Treasury operation. On January 15th (UTC+8), their U.S. interest rate strategists Gennadiy Goldberg and Jan Nevruzi jointly released a report revealing a long-term position in a yield curve trade — establishing a position when the spread between the 2-year and 10-year U.S. Treasury yields was 63 basis points, aiming for this spread to narrow to 40 basis points, with a stop-loss set at 78 basis points.

Why is this operation interesting? Data speaks: during this cycle, the yield curve has flattened by 172 basis points from its steepest point. These strategists compared historical data and, based on their estimate that the Federal Reserve’s terminal rate will be around 3%, believe that the current curve shape is already close to the historical average.

The key observation is this: recent economic data has been somewhat unexpectedly resilient, making it difficult for the market to build expectations of a “significant rate cut by the Federal Reserve.” In this context, the space for the curve to continue flattening depends on the market’s re-pricing of future economic growth and central bank policies. Essentially, this trade is betting on this rebalancing process.