The US Treasury yield curve has reached a record steep slope, as measured by the difference between the two-year and 30-year yield. The almost four-point difference between the on-the-run 0.6 percent two-year yield and the 4.5 percent 10-year bond yield is the highest since 1977, according to Bloomberg data. This would typically indicate an anticipation of higher rates in the future. The market is somewhat distorted by the US Federal Reserve open market activities, wherein they are buying up to $800 billion of the bonds they previously issued.A steep yield curve sets the stage for a specific bond interest-rate strategy, known as the ‘yield curve roll-down'. A higher interest rate is locked-in by buying the higher-yielding longer-term bonds and holding them until maturity. The higher interest rate remains intact as the bonds age, as compared to the shorter maturity bonds in the market with lower rates in a steep yield scenario. An investor ‘rolls-down' the curve as the maturity shortens. The strategy is good as long as the yield curve doesn't flatten from rising shorter-term yields. There are several other elements to consider that will affect this strategy when venturing out of US Treasuries and into corporate bonds.Bond managers are some of the most sophisticated investors in the market. Those trading in bonds have to digest enormous amounts of information. The data intensive nature of the market is communicated in very graphic forms. The main graphs are yield curves and it companion yield spreads. The yield curve is a line graph of the bond yields from short to long maturities, ie three months to 30 years. Whereas a yield spread is the graph of the difference in yields between two types of bonds. It can be the difference in maturities or the difference between treasury and corporation bonds. There are hundreds of ways to look at bond spreads. Next week we will delve further into yield spreads. This week we will talk about yield curves and the corresponding strategies.Bond managers look to generate total return from a combination of the bond interest payments as well as the changes in the market value of the bonds. There are four basic yield curve patterns which will indicate the type of bond investments to capture the highest total return. First there is the steep yield curve, such as the one evident today. These are seen as harbingers of economic upturns with a possible increase in inflation. As inflation erodes the real returns, a higher yield is required to compensate. The real return plus the inflation guard equals the nominal yield. That is the quoted or reported Treasury yield. The second curve shape we witnessed in 2008 is a flat yield curve. This signals an economic slowing with inflation expected to be mute, so the additional yield to shield the real return isn't as necessary.A third shape is the inverted yield curve, where longer-term yields are expected to be lower than on shorter-term bonds, in anticipation of lower inflation. This is not a good sign for the economy, as it suggests an impending recession and key rates to be lowered. An inverted yield curve can be a buying opportunity for bond managers.When current interest rates decline the market value of existing bonds with higher rates tends to increase, creating a higher total return.There is also fourth less referenced yield curve shape. It is a camel-back or humped shape. Here the yields are lower in the short and the long-term, but higher in intermediate maturities. This middle of the yield curve strategy generated the highest total bond returns in 2010 in Treasuries. Graphically, the yield of this intermediate-dated bond will decline as the market price rises, which pushes down the hump and straightens the yield curve again. The shape and steepness of the yield curve is always changing.Based on the type of yield curve evident in the bond market, there are three basic strategies for generating total return. For the camel-back, the ‘bullet' strategy is deployed.Here the emphasis is on holding bonds with similar maturities or on a similar point of the yield curve. A ‘bullet' strategy excels when the yield curve steepens. That is why it outperformed in 2010. A ‘barbell' strategy is when the weights are on both the shorter and the longer maturities with fewer in between. The ‘barbell' works best when the yield curve is flattening, such as when short-term interest rates are rising or long rates recede.The third and final yield curve strategy for bond investing is the ‘laddered' approach. Bonds are selected to mature each year. The principal is paid when they mature, along with the other on-going interest payments.This approach creates predicable cash flows to match set liabilities.As mentioned earlier, optimal bond investing involves the collection, review, and digesting of tremendous amounts of data. The best types of bonds to buy will depend on what is to be achieved, such as to maximise current income or total return or to create a predictable cash flow. Yield curve strategies assist in generating the highest total return when managing a portfolio of bonds.Patrice Horner holds an MBA in Finance, a FINRA Series 7 License, and is a Certified Financial Planner (CFP-US). Any opinions expressed in this article are not specific recommendations, nor endorsements of any productions. Individuals should consult with their banker, insurance agent, lawyer, accountant, or a financial planner for advice to address their personal situations.