Condor and Double Butterfly Curve Structures
Multi-legged bond or swap trades built from four or five points on the yield curve, designed to profit from a change in the curve's shape while staying close to neutral on its overall level.
A basic curve trade (a "butterfly") combines three points on the curve — a short, middle, and long maturity — weighted so the trade is neutral to a parallel shift in rates but profits if the middle maturity richens or cheapens relative to its neighbors. Extending that idea to four points instead of three gives a condor, and stacking two butterflies with overlapping wings gives a double butterfly.
Condors and double butterflies are curve trades built from four or five points instead of three, letting a desk express a view on a more specific, localized bend in the curve while staying neutral to its overall level and slope.
Why add more legs
A three-point butterfly captures curvature at a single spot on the curve. A condor, using four points, can isolate curvature between two separate segments — useful when a trader believes, say, the 2s5s10s belly is expensive but wants to stay neutral to what happens at 30 years. A double butterfly goes further, combining two butterflies (say 2-5-10 and 5-10-30) to express a view on how curvature itself is shifting across the curve, not just where it sits today.
These structures are mostly used by relative-value desks and hedge funds expressing a precise curvature bet while minimizing exposure to the broad direction of rates, which is a much harder call to get right.
Related concepts
Practice in interviews
Further reading
- Practitioner desk notes on curve relative-value trades