Yield curve shift scenarios: from market language to measurable risk
Bull and bear steepening or flattening describe the direction and shape of a curve move. The same change in slope can produce different outcomes for a bond portfolio depending on the level and maturity of the yield shock.
Bull steepening
Yields decline while the long-minus-short slope increases, often because shorter maturities rally more.
Bear flattening
Yields rise while the long-minus-short slope decreases, often because shorter maturities sell off more.
Parallel shift
Short and long yields move by the same number of basis points, leaving the 2s10s slope unchanged.
Interactive 2s10s scenario analyzer
Adjust the starting yields and shocks for two-year and ten-year maturities. The model shows the change in the 2s10s spread and a first-order bond-price sensitivity for illustrative modified durations.
Duration-based price sensitivity
| Instrument | Yield shock | Modified duration | Approximate price change |
|---|---|---|---|
| Short-maturity illustrative bond | — | — | — |
| Long-maturity illustrative bond | — | — | — |
For a small yield change, the first-order approximation is ΔP/P ≈ −modified duration × Δyield, with Δyield expressed in decimal form. The calculation excludes convexity, carry, roll-down, coupon cash flows and spread changes.
Why slope alone is not enough
A flatter curve does not necessarily mean bond prices fell. Bull flattening and bear flattening both reduce the 2s10s spread, but they describe different yield-level environments. Similarly, a steepening curve may occur alongside falling or rising yields.
For portfolios, the distribution of duration across key-rate maturities matters. Two portfolios with similar aggregate duration can react differently to nonparallel shocks. The simple two-point model is a learning and scenario-screening tool, not a substitute for full key-rate duration analysis.
The regime label is based on the direction of the average of the two specified yield shocks and the change in the 2s10s slope. Mixed-sign shocks can be classified as twist scenarios when the average change is approximately zero. This is a simplified convention, not a universal market taxonomy.
Continue with BondStats market analysis
Compare with Bear Flattening, Bull Steepening, and the Global Yield Curve Database. The existing pages explain the market concepts; this page makes their numerical consequences interactive.