Market Measures

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Yield Curve Setups Using ETFs

Market Measures

Options involve risk and are not suitable for all investors. Please read before deciding to invest in options.

With the spread between the longer duration yield and shorter duration yields flattening comparably to 2007, Tom and Tony look for opportunities to trade the yield curve.

Things to keep in mind when trading the curve:

  • Yields and prices go in opposite directions
  • TLT is a 20+ year bond ETF
  • IEF is a 7-year bond ETF
  • Futures are another outlet to trade the curve
Trade example:

Shorting TLT is one method of making the assumption that the 20-year yield will increase. If IEF has an IV of 4 while TLT has an IV of 11, we want to have 2.5X more IEF than TLT. Since IEF is less liquid, we could get long IEF and simply sell the appropriate amount of calls in TLT.

Tune in as Tom and Tony break down these products in detail and explain management of yield curve positions via ETFs.

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