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When Will the Steepening Stop?

Mar 2, 2021

By: Frank Kaberna

While “The Steepening” may sound like a Hollywood-produced thriller wherein an animated monster made of tea leaves terrorizes some unassuming small town, it’s in fact the increase in the spread between short-term and long-term interest rates.

This form of steepening, however, can be a beast in its own right: the gap between 2YR and 10YR US Treasury rates has gone from below 0.80% at the start of December to above 1.3% last week (its highest value since 2015).*

The Case for the 2YR

Most of the steepening seen in the yield curve has come from the fresh legs of the 10YR getting as far as 1.4% as the 2YR still sits near 0%. A case could be made for the 2YR finally waking up and taking part in some of the upside that the rest of the curve has witnessed in the last few months (Small 2YR Yield (S2Y) futures let traders directly access short-term rates).

The Heat is On (Small 2YR vs Small 10YR)

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Source: dxFeed Index Services (https://indexit.dxfeed.com)


The Case for the Flattener

Traders can also play the difference between 2YRs and 10YRs by way of the spread. This interest rate-neutral trade puts two parts of the yield curve together to speculate on their difference growing and contracting. Some flattening could be in order after this historic run of steepening.

Screen Shot 2021-03-02 at 10.32.08 AM.png

The everyday trader can choose to view this blockbuster event through the lens of bullish/bearish interest rate trades or steepening/flattening yield curve spreads.

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Save Every Time You Trade the Smalls

The Small Exchange has also created a limited number of subscriptions for a one-time payment of $100 that give traders a lifetime of reduced exchange and market data fees when trading the Smalls.

For more information on the Small Exchange’s products and subscription service, visit smallexchange.com. And be sure to check out my new show on tastytrade, Small Stakes, where Pete Mulmat and I will show viewers how to navigate Small Exchange products every Monday-Friday and always on demand.

If you’d like to find out where to trade the Smalls products check out the list of brokers that offer their products, or tastytrade’s preferred broker tastyworks.


*Treasury yields (https:/treasury.gov) and index values (https://indexit.dxfeed.com/) taken on 2/25/21

© 2021 Small Exchange, Inc. All rights reserved. Small Exchange, Inc. is a Designated Contract Market registered with the U.S. Commodity Futures Trading Commission. The information in this advertisement is current as of the date noted, is for informational purposes only, and does not contend to address the financial objectives, situation, or specific needs of any individual investor. Trading futures involves the risk of loss, including the possibility of loss greater than your initial investment.


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