A Makeshift Yield Curve Steepener

I have held SHY (1-3 year Treasury bond fund) as a cash equivalent for many months now. It’s paid out a lot of good income (chart 1 includes the income) but also a lot of price appreciation as well (chart 2 is less the dividend payments).

shyshy

I have a developing contrary view of Treasury bonds, opposite the pro-bond contrary view I had in Q4 of 2018. Everybody is on the pro-bond side of the boat now and the yield curve/spread has been hinting to steepen. Here it is as of this moment (CNBC)…

yield curve

So with SHY’s short duration and monthly income rather than sell it just yet I thought I’d try to mock up a steepener by taking on some long-term bond bear fund TBT. This play favors short-term bonds over long-term bonds (regardless of whether they both drop), which is what a steepening curve is, and pays income while doing so. If the curve steepens it can’t not work toward its intended goals. Now watch the Fed introduce some new tool for continued/resumed yield curve manipulation.

tbt

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