Strategy · Fixed Income

CARRY & ROLL-DOWN ON TREASURIES

BullishDefined riskAdvanced

Overview

In a positively-sloped yield curve, hold longer-dated Treasury futures to earn carry plus roll-down as the bond ages along the curve. A core institutional rates trade.

Setup

1.Build the current Treasury yield curve from on-the-run issues.
2.Identify the segment with steepest slope (often 5-10y).
3.Take a long futures position in that maturity.
4.Hold for 1-3 months; rebalance as the bond rolls down the curve.
5.Hedge interest-rate risk with a partial short on a flatter segment if desired.
6.Track total P&L = coupon + price appreciation from roll-down.

Max profit

Carry yield + roll-down; typical 3-8% annualized in steep-curve regimes.

Max loss

Duration × yield rise + position size; can be substantial in rate-spike scenarios.

Breakeven

Carry covers any small yield-rise losses.

When to use

When the curve is steep and the Fed is on hold or cutting.

When to avoid

When the curve is flat or inverted, or during expected rate-hike cycles.