Remember Julian Robertson’s curve steepener? At the end of January, it seemed very smart. The spread between two-year and ten-year rates had widened out to 150bp, from just 97bp earlier in the month. As a long-term bet it made a lot of sense: with central banks dropping dollar bills from helicopters at the short end of the curve and inflation finally showing some teeth at the long end, where else would long-term rates go but up?
And indeed, revisiting the numbers from back then, the yield on the 10-year note has risen, as expected. On January 30 it was 3.71%; today, it’s 4.10%. That’s another 39bp of steepening, right? Wrong. The yield on the two-year note has risen even further, to 2.80% from 2.21%. As a result, the difference between the two, at 130bp, is 20bp lower than it was at the end of January, and financial institutions who put on steepeners this year have lost as much as $5 billion, according to the WSJ. I wonder if Robertson is among them.