In the context of yield curve trades, what is the main strategy employed?

The main strategy employed in yield curve trades involves trading bonds with varying maturities. This approach capitalizes on the shape and changes in the yield curve, which represents the relationship between interest rates and different maturities of debt. Traders might employ strategies such as steepening or flattening trades, where they take positions based on expectations of how the yield curve will shift due to changes in economic conditions, interest rates, or monetary policy.

By trading bonds of varying maturities, investors can benefit from changes in interest rates that affect different maturities to different extents. For instance, if an investor anticipates that long-term rates will fall more than short-term rates, they can buy longer maturity bonds and sell shorter ones, aiming to profit from the resulting changes in prices. This strategy allows for capturing potential price fluctuations and interest rate movements in a dynamic fixed-income environment.