Bear Steepener

Bear Steepener

A bear steepener is a move in the yield curve where long-term interest rates rise more than short-term rates. The curve becomes steeper because the gap between long and short yields widens. It is called “bear” because rising yields usually mean falling bond prices.

What it looks like (simple example)

Imagine the 2-year Treasury yield goes from 4.0% to 4.2% (up 0.2%), while the 10-year Treasury yield goes from 4.2% to 4.8% (up 0.6%). Long-term yields moved up more, so the yield curve steepened. Since bond prices move inversely to yields, 10-year bond prices would typically fall more than 2-year bond prices.

Why does a bear steepener happen?

  • Higher long-term inflation expectations: Investors demand higher yields to protect purchasing power.
  • Heavier Treasury issuance: More long-term bonds for sale can push long yields higher.
  • Stronger growth expectations: Markets may price in higher future rates and higher long-run borrowing costs.

Common confusion: bear steepener vs. bull steepener

A bear steepener is about rates rising (especially long rates). A bull steepener is the opposite, it usually happens when rates fall (often short rates fall faster), and bond prices rise.

Why it matters in finance

A bear steepener can increase duration risk for long-bond portfolios, affect mortgage and credit pricing tied to long-term rates, and often helps bank net interest margins when long rates rise relative to short rates.

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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.

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