Usually the yield curve steepens at the end of a tightening cycle once the policy rate is cut sharply. But we do not think this is the end of the cycle, and we do not expect policy rate cuts in the foreseeable future. Rather, this will be a different type of curve steepening as QT and the Treasury combine to push up long-term rates entirely independent of growth expectations, while inflation expectations likely remain anchored. We express this view through a 2s10s steepener: we buy the 2s10s spread at 25bp and look for a move to 60bp, with a stop at 0bp (we will know we are wrong if the curve inverts).
The curve steepened and we closed the position on 13 March for a total return of 48bps.