To Morgan Stanley's Matthew Hornbach, the flattening Treasury yield curve has a lot in common with the surging price of bitcoin.
For both trades, the best option is to simply buy the dips, Hornbach, global head of interest-rate strategy, wrote in a Nov. 18 note.
He recommends adding to bets that the yield spread between two- and 30-year Treasuries will continue to narrow, even though it fell to 104 basis points Monday, the lowest in 10 years. He says the curve could flatten to as low as 80 basis points by year-end, based on Fibonacci projections.
"Trading the flattener should feel very much like trading bitcoin: you're meant to buy every dip, if you see the value proposition, even though you've already missed what seems like a big move," Hornbach wrote.
The persistent flattening of the U.S. yield curve has dominated discussion in the $14.3 trillion Treasuries market as traders assess what it might mean for monetary policy. It has only steepened in five of the past 20 trading days.
Much like the price of bitcoin has almost doubled since the end of September, the yield spread between two- and 30-year debt has narrowed the most on a one-month rolling basis since December 2014.
