In anticipation of a Federal Reserve move, some investors are turning to an alternative fixed-income exchange traded note that capitalizes on a flattening yield curve.
The yield curve has flattened after a strong 30-year Treasury bond auction pushed up prices in long-term bonds and depressed yields, Reuters reports.
Meanwhile, on the shorter end of the Treasury bond market, yields on short-term maturities are hitting new six-year highs as traders trimmed securities in anticipation of a FOMC rate hike on Wednesday.
“The main theme has been a flatter curve with the front end trading very heavy to the highest yields in a few years and the long end just trying to hold in above the auction stop,” Justin Lederer, Treasury analyst at Cantor Fitzgerald, told Reuters.
On Wednesday, the iPath US Treasury Flattener ETN (NYSEArca: FLAT) rose 2.4%. FLAT is designed to capture returns available in the U.S. Treasury yield curve environment by “flattening” the U.S. Treasury yield curve.
Specifically, the iPath U.S. Treasury Flattener Exchange Traded Note reflects the daily inverse performance of the Barclays Capital U.S. Treasury 2Y/10Y Yield Curve Index, which implements a sophisticated investment strategy that allows investors to bet on slope of the yield curve.