Home / Ideas / Treasury yield-curve carry & roll-down
Treasury yield-curve carry & roll-down
long duration when the curve pays you to wait
In a positively sloped curve, long bonds earn carry (yield pickup) plus roll-down as they age toward shorter, lower-yielding points. Academic work shows past bond returns predict future returns via autocorrelation in yield changes and risk premia (yield-curve momentum), and AQR's carry framework formalizes harvesting term premium. TLT's 2-20y spread currently embeds elevated term premium.
Why it's relevant now
2026 consensus has the 10-year rangebound (~3.75-4.25%) with the Fed near neutral — a regime where directional duration bets are risky but curve carry/roll-down is comparatively stable and re-priced by a re-steepening front end as cuts land.
Universe
TLT (20y+), IEF (7-10y), SHY (1-3y) as curve-segment proxies.
How it works
Each month, own the segment (TLT/IEF/SHY) with the best trailing carry+momentum score (e.g. 3-6 month total return as a carry+roll-down proxy), or run a curve spread (long TLT / short IEF) scaled by the slope; hold 1 month.
Expected performance
Research-derived Sharpe estimate: 0.3–0.7. curve carry is low-vol; edge is steady but modest and duration-sensitive).
Backtest this idea with SignalChain
This is a research lead — not a finished backtest. SignalChain takes an idea like this and runs the whole pipeline inside Claude Code: it researches the concept against academic and practitioner sources, sets benchmarks, writes and lints a VectorBT backtest, runs it, and grades the result PASS/FAIL. One command:
/signalchain Monthly Treasury curve rotation across SHY IEF TLT selecting the segment with the best 6-month total return as a carry-plus-rolldown proxy
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Research & sources
- bsic.it — bsic.it
- planmyretire.com — planmyretire.com
- ishares.com — ishares.com
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