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Cheap or Rich? Buying the Two-Year Treasury Note

 
Observation Deck
April 01, 2011 Posted by:

In the time since the Federal Reserve Board brought the target fed funds rate to 0.00 - 0.25 percent, there has been more volatility and opportunity in the two-year Treasury note than short Treasury bills.

Given these changes in price, when is the two-year a buy? Over the current environment of low rates, our strategy has been to be neutral to slightly long of the benchmark. We have opportunistically taken advantage of the spread trade when variance was wide, and abstained from buying when the spread was tight. Essentially, our philosophy is to buy when the market is cheap and stay away when the market is rich..

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