Meaning: Curve flattening describes a narrowing in the slope of the yield curve, meaning that yields on longer-dated bonds move closer to yields on shorter-dated bonds. The change can result from rising short-term yields, falling long-term yields, or both, and it is commonly measured by the change in spread between key maturities such as the 2-year and 10-year points. Contexts exist across government and corporate debt, including Treasuries and credit markets, with the curve sometimes flattening while different segments move in different directions.
How it is used: Market participants monitor the curve slope as an indicator of evolving expectations for economic growth, inflation, and policy. A flatter curve is often discussed in market commentary as signaling reduced differential in expected growth or inflation, or recalibrated expectations for the path of policy rates. Analysts may reference changes in the yield spread to discuss relative value across maturities and to frame risk assessments for portfolios with multi-maturity exposure. In models, the slope is a factor in scenario analysis and in analyses that compare fixed-rate versus floating-rate instruments.
Context: Flattening can occur due to shifts in monetary policy expectations, changes in term premiums, or demand and supply imbalances across maturities. Because bond prices respond inversely to yields, duration and convexity profiles of fixed-rate securities shift as the curve flattens, influencing pricing dynamics for a wide range of fixed-income instruments.
In a market note, analysts described curve flattening when the spread between the 2-year and 10-year yields narrowed, signaling changing expectations for policy and growth.
Yield curve · Curve steepening · Yield spread · Duration · Monetary policy expectations · Forward rate