Therepresents the yield on U.S. debt with varying maturities. The yield curve can be trade by purchasing/selling different debt products on the yield curve. One example is the NOB (Notes Over Bonds) spread, which is a between the 10-year Note and 30-year Bond .
Different bonds have different DV01 values, or duration. This represents how much the bond price should fluctuate with a 1 basis point move in the underlying interest rate. This was explained as theof a Bond. A ratio must be calculated to get a DV01 neutral position in order to play the difference in yields.
Pete used a table to show how to use DV01 to create equivalent positions between Notes (/ZN) and Bonds (/ZB). He noted that the current ratio was 3:1 Notes over Bonds. How the NOB spread helps to gauge the current shape of the yield curve was discussed. A graph of the yield curve from June 2015 to present was displayed. What the yield curve indicates about economic expectations was explained, and a table laid out different strategies for different outlooks.
Pete introduced a bear spread futurestrade. Pete also mentioned using a defined risk trade using Bond and Note with . These trades take up much less .
Watch this segment of “Closing the Gap-Futures Edition” with Tom Sosnoff, Tony Battista and Pete Mulmat for the valuable takeaways and better understanding of the NOB Spread and the yield curve.