Curve-Steepening Bank-Margin Spread: Long XLF / Short XLU When the 2s10s Treasury Curve Has Steepened Over the Last 4 Weeks, Reverse When It Has Flattened (USEQ 1-DAY, dollar-neutral two-ETF book, weekly decision, next-open fills, FRED T10Y2Y signal)

Original Research Lead hypothesis. It is a dollar-neutral long/short sector spread on two US-listed Select Sector SPDRs, XLF.USEQ (financials) and XLU.USEQ (utilities), signed by a macro feed no strategy in the factory has traded on: the FRED 10-year minus 2-year Treasury spread (series US_2S10S, FRED T10Y2Y, daily from 1976). The platform's macro_supp loader keys each daily value at availability (observation date + 1 day, i.e. after the US close of that date), and the strategy reads it only through supp_as_of('US_2S10S'). Mechanism. Banks borrow short and lend long, so their net interest margin depends on the slope of the yield curve (English, Van den Heuvel & Zakrajsek 2018, J. Monetary Econ.). Utilities are the market's bond-proxy sector: regulated cash flows and high payout. When the curve steepens, especially a bull steepening driven by a falling 2-year yield as the market prices easier policy, the earnings outlook for financials improves relative to utilities. The hypothesis is that sector prices absorb this macro information over weeks rather than at once (slow diffusion of macro and industry information: Hong, Torous & Valkanov 2007, JFE). So a lagged, public curve-slope change predicts the next week's XLF-minus-XLU return. Pre-registration study (Research Lead, pandas, run 2026-10-19 on local USEQ daily bars 1998-12 to 2026-10). Weekly decision at the last session of each week, fill at the next session's open, curve value lagged 2 days (more conservative than the platform's 1-day availability lag), 50/50 legs at 1x gross, no costs. Results: - Baseline (4-week 2s10s change, 3 bp deadband): Sharpe 0.47, about +5.7% a year, 21 of 29 years positive, both halves positive (Sharpe 0.60 before 2012, 0.31 after), 226 position flips (distinct entry dates), +0.70% equity per hold, max drawdown 33.7% at 1x gross. - Neighbourhood (lookback 2/3/4/6 weeks x deadband 0/3/6 bp): Sharpe 0.33 to 0.47 in all 12 cells, so the surface is flat rather than jagged. - Other legs: KRE vs XLU 0.43; XLF vs SPY 0.46, so the effect is specific to financials and not only a utilities short. - Longer signal lag: 5-day lag 0.35, 9-day lag 0.31, a gradual decay. Controls and nulls, pre-registered so the analyst can weigh them: - (i) Price-only control. The sign of the XLF/XLU spread's own 5/10/20-session log return on the same weekly clock gave Sharpe -0.29 / -0.13 / -0.13. The curve signal is therefore not spread momentum in disguise. Incremental expectancy attributed to the external signal (lesson L217) is about +0.6 Sharpe over the price-only arm. - (ii) The 10-year yield LEVEL change has no edge (Sharpe -0.05 to -0.18). - (iii) The 3-month/10-year slope (US_3M10Y) also has NO edge (Sharpe -0.07). This is the honest weak point: the effect sits in the 2-year (policy-expectations) end of the curve, not in the slope as such. A falling 2-year yield alone, used as the sign, gave Sharpe 0.27. - (iv) Correlation of weekly P&L with the promoted NFCI cyclical/defensive spread's signal on the same XLF-XLU pair: 0.04, so the run adds independent information to the portfolio. These numbers come from my own screen of about 20 variants. The analyst should count those looks against the lineage, and the baseline (4 weeks, 3 bp) was the best cell of the grid. Execution (capability registry). USEQ is a session venue. Orders decided on a session's close fill at the next session's open (next_open_fill: supported), with no market-on-close. The week's last trading session comes from the platform session helpers (src.strategies.helpers.sessions / the FactoryStrategy session calendar), never a hard-coded weekday, so holidays and half-days are handled. No stop orders are used. Both legs are traded on USEQ; the curve series is signal-only supplementary data. Cost arithmetic. USEQ round trip is about 0.02-0.05% of notional per leg. A flip closes and reopens two legs (about 0.10% of book notional at worst) about 8 times a year. The expected capture is about 0.70% of leg notional per hold (gross pre-study), well over twice the cost. Risk control route (b): signal-based exit (the weekly signal flip) with capped sizing. Each leg is 35% of equity (0.70 gross, 0 net), no single position above 35% of equity and no leverage. XLF's daily std is about 1.7%, so one leg contributes about 0.35 x 1.7% x sqrt(252) = 9.5% annualized vol, far below the 120% per-position cap. The strategy targets about 10-12% realized annual vol. No stop-loss is added, because a per-leg stop would break the dollar neutrality of a regime spread. The worst single-leg trade in the pre-study at this size stays well under the 15%-of-equity per-trade limit; the analyst should verify this from the trades.