Expert: Doug Ingram - 12/10/2010

Question
I read an article today at Zero Hedge where the author talks about the "2s10s, the 10s30s, the 2s30s, and the 2s10s30s" but have no idea what these abbreviations mean. Can you help me understand by explaining or point me to a book or web site that will do that?

The Treasury yield curves are especially important now form what I read so I would like to better understand these.Thank you.

Answer
He's most likely referring to the difference in yield between the 2 and 10-year (2s10s) or the 10 year to the 30-year (10s30s) or the 30-year less 2-year yield (2s30s).


The longer yield is almost always higher that the yield at the shorter end in a normally sloped curve.  Investors are paid more to take more risk - and inflation is expected to be higher.  Spreads are quoted as the longer maturity minus the shorter.  The 10-year now is 3.29% and the 2-year is .62% Thus the spread is 267 bps. (Quite wide!) The traders would probably have a 266-268 bid/ask market.

There have been numbers of times when the yield curve was inverted (usually preceding recessions).

There is money to be made by selling 10s and buying 2s if the spread gets too wide.  Obviously, if you can correctly catch an unwinding inversion, buying 10s and selling 2s would be the reverse strategy.  More often, traders are constantly shorting or buying the spread when they expect the yields to narrow or to widen versus each other.