BEAR FLATTENER

A yield-rate environment in which short-term interest rates are increasing at a faster rate than long-term interest rates. This causes the yield curve to flatten as short-term and long-term rates start to converge.

At any time, the yield curve is either in a state of steepening or flattening. These fluctuations occur due to investor demand, change in interest rates, and institutional investors trading large blocks of fixed-income securities.

If the curve is flattening, the spread between long-term rates and short-term rates is narrowing. A bear flattener often occurs when the government raises interest rates in the short term. Increasing interest rates drives short-term bond prices down, increasing their yields rapidly in the short term, relative to long-term securities.