One trade powered up by the Fed's QE3 is a steepening yield curve play in Treasurys. Traders see the trade -- selling 10-year note and 30-year bond to buy shorter-dated notes like 2 year, 5 year and 7 year maturities -- could have more room to run if the risk-on momentum in financial markets persists. A steepening curve is a hedge against inflation risk, which hurts long-dated bonds. The yield spread between 2-yr and 30-yr bonds hit a four-month peak of 282bps Friday, up from 245bps at the end of August, though still below this year's peak of 309bps made in March. The benchmark 2-yr/10-yr yield curve also widened to 161bps, widest since May.
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