Our methodology is a simple reversion to-the-mean strategy. We quote spreads using changes from the prior day’s settlement prices. We target deviations from recent historical norms for pricing along the curve .We find abnormalities throughout the full 23-hour trading day and we take advantage as many times as we can execute at favorable levels.
The trading strategy would be implemented by taking a long position at B and short positions at A and C that have a combined value equivalent to that of the long position.
The trade is productive whether the yield at B drops into line with the yield curve or the curve rises to bring itself into line with B’s yield: the returns are symmetrical and thus the trade is directionally hedged.
Short positions at A and C are dollar neutral the long position at B.