A Macro Thread on Yields

21 янв. 2021 г.

The bond market can be quite tricky.

In terms of yield curves consider the following:

• Bear steepening
  
• Bull Steepening
  
• Bear Flattening
  
• Bull Flattening
  

> Steepening (the premium for longer debt is growing)
> Flattening (the premium is shrinking)

For example, bull steepening, which is exactly what we have been doing this since the start of this year:

The short-end of the yield curve (typically driven via fed funds rate) falls faster than the long-end, steepening the yield curve.

The long end of the yield curve is driven by a wide range of factors, including - economic growth, expectations, inflation expectations, and supply and demand of longer-maturity Treasury securities and etc

📍 A bull steepener
↳ is a shift in the yield curve caused by falling interest rates - rising bond price - hence the term “bull”.

📍A bull flattener
↳ is the opposite of a steepener - a situation of rising bond prices which causes the long-end to fall faster than the short-end.

📍Bear steepness and flatteners
↳ are caused by falling bond prices across the curve

A bull steepener is a change in the yield curve caused by short-term interest rates falling faster than long-term rates, resulting in higher spread between the two rates. A bull steepener occurs when the Fed reserve is expected to lower interest rates. This expectation causes consumers and investors to become optimistic about the economy and bullish about prices in the stock market above the short-term.

Thanks as usual for keeping the feedback coming 👍 or 👎