Bull Steepener

Bull Steepener

A bull steepener is a move in the yield curve where the curve gets steeper because short-term yields fall more than long-term yields. It is called “bull” because overall interest rates are falling, which is usually positive for bond prices.

What it looks like: Imagine the market starts to expect the central bank to cut rates soon. The 2-year Treasury yield, which is heavily influenced by near-term policy, drops from 4.50% to 3.80%. The 10-year yield drops too, but less, say from 4.20% to 4.05%. The gap between 10-year and 2-year yields widens from -0.30% to +0.25%. That widening is the “steepening.”

Why it happens: A bull steepener often reflects two ideas at the same time. First, the market expects easier policy soon, which pulls short-term yields down. Second, investors may still expect better growth or higher inflation later, so long-term yields do not fall as much, and can even rise.

Do not confuse it with a bear steepener: In a bear steepener, the curve also steepens, but it happens because long-term yields rise and overall rates are moving up.

Why it matters: A bull steepener can boost bond prices most in short maturities, affect bank net interest margins by changing funding costs versus lending rates, and signal a market view of near-term rate cuts alongside longer-term growth or inflation risk.

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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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