On March 2, 2010, I wrote: “I think 2-year notes yields will go higher (2-year note prices will go lower)…Right now, 2-year notes yield 81 bps. I think we’ll see 2-year note yields rise at least 20 bps within six months. Recommendation: short 2-year notes (or sell 2-year note futures).”
2-year notes now yield 117 bps. This is an increase of 36 bps in a little more than a month. I am closing my short 2-year notes recommendation now. Note that this was a different trade idea than the flattener trade idea – the flattener is a bet on the slope of the yield curve, while this was a bet on the level of interest rates. My third flattener recommendation is still open.
The flattener trade involves shorting 2-year notes and also going long 10-year notes, so a trader who implemented both my flattener recommendation and my short 2-year notes recommendation would have overlaid one short position in 2-year notes on top of another.