Which term describes the strategy of profiting from the difference in yields between different maturities of government bonds?

The strategy of profiting from the difference in yields between different maturities of government bonds is best described as yield spread trading. This approach involves taking positions in bonds of varying maturities with the aim to capitalize on the changing yield differentials.

Traders analyze the yield curve, which illustrates the relationship between interest rates and the time to maturity, to identify potential opportunities. The expectation is that as market conditions change, the spreads between different maturities will widen or narrow, allowing traders to profit from these movements.

This technique is fundamental in fixed income trading, as it allows participants to exploit inefficiencies in how bonds are priced across various maturities while managing interest rate risk. It’s important to note that yield spread trading is specific to the bond market and does not apply to other financial instruments or strategies.

The other options refer to different strategies that focus on various aspects like tax optimization, equity markets, or hedging against potential losses, which do not specifically address the strategy of yield spread trading in government bonds.