Quicktake On Curve, Taking Profits

After entering 5s30s steepeners back in early January when curve was around 130-140, TD Securities strategists said they took profits on the position, unwinding at 159.0.

• TD notes the "recent selloff hints at taper fears and that risks the front-end as well since QE and rates are inherently linked. The market has pulled forward the timing of the first hike to just March 2023, flattening the curve. We think that the timing is too aggressive but prefer being long 5s rather than in steepeners.
• Convexity hedging hurts the belly, exacerbating 5s30s flattening: While the Fed has suggested that it's too early to talk about the taper, they suggested that the rise in rates so far is not problematic. This has added fuel to the selloff but as we hit new rate highs, convexity paying pressure should emerge.