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CFA Level I · CFA Level I Exam · The Term Structure of Interest Rates: Spot, Par, and Forward Curves

A yield curve moves so that 2-year yields rise by 0.50% while 10-year yields rise by 0.10%. This movement is best described as a:

This is a bear flattening. Yields rise at both maturities, so bond prices fall, which is the bear element. The short-term yield rises more than the long-term yield, so the spread between long and short maturities narrows, which is flattening.

  1. Abear steepening
  2. Bbull flattening
  3. Cbear flatteningCorrect

Explanation

Yields rise overall, so prices fall, which is bearish. Short rates rise more than long rates, so the spread between the 10-year and 2-year narrows, which is flattening. The combination is bear flattening.

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