What strategy involves buying 2Y Treasuries and shorting 10Y Treasuries?

The strategy of buying 2Y Treasuries and shorting 10Y Treasuries is known as Yield Curve Flattening. This approach is based on the expectation that the yield spread between short-term and long-term bonds will decrease.

When investors anticipate a flattening of the yield curve, they expect that short-term interest rates will rise, or long-term rates will fall, making shorter-term securities more attractive relative to longer-term securities. By buying the 2Y Treasury, the investor is looking to benefit from relatively lower yields on shorter maturities, while shorting the 10Y Treasury is a bet that its yield will decline or not keep pace with the 2Y, thereby narrowing the spread between these two maturities.

In contrast, a Yield Curve Steepening strategy would typically involve actions that would benefit from widening spreads, such as shorting shorter maturities and buying longer ones. Long Term Investment does not specifically focus on yield curve positions, while Arbitrage Strategy usually implies a more complex trading approach that seeks to exploit price inefficiencies rather than simply betting on the movement of the yield curve. The actions taken in this scenario are directly focused on predicting changes in the yield curve, making the concept of Yield Curve Flattening the most