Bear Flattener

Bear Flattener

A bear flattener is a move in the yield curve where interest rates rise across maturities, but short-term rates rise more than long-term rates. The result is a flatter curve, even though yields are higher overall.

Simple example: suppose the 2-year Treasury yield jumps from 4.50% to 5.25% (up 75 basis points), while the 10-year yield rises from 4.20% to 4.45% (up 25 basis points). Short rates “bear” the bigger move upward, so the curve flattens.

What usually causes it?

  • Fed tightening: markets price in more rate hikes, which hits short-term yields most directly.
  • Sticky near-term inflation: investors demand higher yields in the front end because inflation looks stubborn in the next 6 to 24 months.
  • Growth concerns later: long-term yields may rise less if investors think tighter policy will slow the economy.

Why people confuse it: A bull flattener is also a flattening, but it happens when yields fall, often because the market expects rate cuts or weaker growth. Also, a bear flattener is not the same as an inversion. The curve can flatten without short-term yields exceeding long-term yields, although repeated bear flattening can push the curve toward inversion.

How it shows up in real finance: It can pressure bank net interest margins if funding costs reprice faster than longer-term loan yields. Bond investors may reduce duration risk or shift exposure along the curve. Traders may use curve flattener trades, like being more exposed to rising 2-year yields than 10-year yields.

Why it matters: A bear flattener is a clear signal that markets expect tighter policy now, and it can raise recession risk if tighter conditions persist.

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Disclaimer: This post is for informational purposes only and does not constitute financial, legal, or investment advice. Please consult a qualified professional for guidance tailored to your situation.

For personalized support, contact GLOBAL ABAS Consulting, LLC with your specific questions or concerns.

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