Managers buy long-dated debt in 'curve flattener' trade

Some of the UK's biggest bond and absolute return funds are shorting short-dated government bonds and buying into long-dated debt in what is being dubbed the ‘curve flattener' trade.

Years of low interest rates have inflated prices on short-dated debt, as managers moved to short-duration assets to protect against rate rises. At the same time, longer-dated government debt has been under-bought, leading to a steep yield curve many believe has begun to unwind. Since the beginning of last month, short-dated bonds have suffered, with the yield on 5-year treasuries rising from 1.46% to 1.74% last week. By contrast, 30-year treasuries have rallied slightly, from 3.55% at the beginning of March to 3.49% at the end of April.  Over the past few months, manager have been ...