Did You Lose Money in Steepeners? Here’s What You Need to Know

The Sonn Law Group is Investigating Claims for Investors Who Sustained Investment Losses in Steepeners

What is a Steepener?

A steepener is a type of complex, structured investment product. Essentially, a steepener is an interest rate swap. With a steepener trade, one party (investor) agrees to pay a counterparty a fixed rate in exchange for a floating rate.

What does that actually mean in the real world? As a general matter, it means that the investor is making a bet on the shape of the yield curve. If there is a large difference between long-term interest rates and short-term interest rates, there is a very “steep” yield curve.

An investor who bet on a steepening curve would benefit if this difference continues to grow. In contrast, when there are relatively small differences between long-term interest rates and short-term interest rates, there is a “flat” curve. As you might expect, an investor who bet on a steepening curve would suffer losses if the difference between the rates starts to shrink.

Are Steepeners Safe Investments?

No. Of course, as with all investments the risk to any individual depends on the specific structure of the investment and the total makeup of the portfolio. Still, steepeners are complicated trades that are only suitable for very sophisticated investors.

A steepener is an illiquid investment and, in many cases, it is ‘callable’ investment. A ‘callable’ financial product is not necessarily a bad financial product — but these types of investments are riskier financial products. Investors should be aware of and prepared for the risks.

Further, investors need to consider whether it is in their best interests to be “betting” on the shape of the yield curve at all. As was demonstrated in August of 2019, when the yield curve inverted, the spread between short-term and long-term interest rates can be difficult to predict.

Can I Recover Financial Compensation for My Steepener Losses?

It depends on the specific circumstances of your case. There is market risk associated with every type of trade and every type of investment strategy. That being said, the steepener trade is a particularly complex and potentially risky investment strategy. It is simply not suitable for all investors.

If your financial advisor or broker-dealer recommended steepeners without properly explaining the risks, you may have a viable FINRA arbitration claim. Notably, when a steepener investment goes wrong, the losses can sometimes be devastating — potentially in excess of 50 percent of the principal. When the risks are misrepresented or omitted by financial advisors, investors may be eligible to recover financial compensation for their losses.

Get Help From an Investor Losses Attorney Today

At Sonn Law Group, we are currently investigating claims involving steepeners and related investment strategies. Our legal team advocates for the legal rights and financial interests of investors throughout the United States and North America. To set up a free, strictly confidential review of your claim, please do not hesitate to contact us today.