Curve Flattening
When the yield spread between long- and short-term Treasuries narrows — short yields rising faster than long yields, or long yields falling faster.
Curve flattening occurs when the spread between long and short Treasury yields compresses. A bear flattener — the most common — happens when short yields rise faster than long yields as the Fed hikes rates; the market anticipates that aggressive tightening will slow growth and bring rates back down eventually.
A bull flattener occurs when long yields fall faster than short yields, often on flight-to-safety buying of long Treasuries during risk-off events.
Sustained flattening is a warning sign for risk assets. It signals tightening financial conditions at the short end while long-end growth expectations moderate — a headwind for economically sensitive sectors and leveraged credit.
Related Terms
2s10s Spread
The yield difference between the 10-year and 2-year U.S. Treasury notes — the most widely cited gauge of yield curve shape and recession risk.
IntermediateFederal Funds Rate
The overnight interest rate at which U.S. banks lend reserve balances to each other — the primary policy rate the Fed targets to steer the economy.
IntermediateInverted Yield Curve
When short-term Treasury yields exceed long-term yields — historically the most reliable leading indicator of U.S. recession.
IntermediateYield Curve
A graph of Treasury yields across all maturities — from 3 months to 30 years — that maps the term structure of interest rates at a given moment.
Intermediate