An option on the spread between two rates at different maturities on a yield curve. Depending on the specific terms selected, the option will pay off on flattening or steepening of the yield curve. A yield curve option will cost less than separate put and call options on the representative issues used to construct the yield curve because the yield curve option pays off only on the change in the spread whereas one of a pair of separate options might be in the money as a result of a parallel shift in the yield curve. See also Term Structure of Interest Rates, Yield Curve Flattening Warrants.
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