What is 'Bear Flattener'
Bear flattener is a yieldrate environment in which shortterm interest rates are increasing at a faster rate than longterm interest rates. This causes the yield curve to flatten as shortterm and longterm rates start to converge.
BREAKING DOWN 'Bear Flattener'
The yield curve is a graph that plots the yields of similarquality bonds against their maturities, ranging from shortest to longest. Typically used in reference to U.S. Treasury securities, the yield curve shows the yields of bonds with maturities ranging from 3 months to 30 years. In a normal interest rate environment, the curve slopes upward from left to right, indicating a normal yield curve. A normal yield curve is one in which bonds with shortterm maturities have lower yields than bonds with longterm maturities. The short end of the yield curve based on shortterm interest rates is determined by expectations for the Federal Reserve policy; it rises when the Fed is expected to raise rates and falls when interest rates are expected to be cut. The long end of the yield curve is influenced by factors such as the outlook on inflation, investor demand and supply, economic growth, institutional investors trading large blocks of fixedincome securities, etc.
The changes in the shortterm or longterm interest rates leads to a steepening or flattening of the yield curve. The yield curve steepens when the difference between short and longterm yields increases. This tends to occur when interest rates on longterm bonds are rising faster than rates on shortterm bonds. If the curve is flattening, the spread between longterm rates and shortterm rates is narrowing. A flattener can either be a bull flattener or a bear flattener.
A bull flattener is observed when longterm rates are decreasing at a rate faster than shortterm rates. The change in the yield curve often precedes the Fed lowering short term interest rates, which is a bullish signal for both the economy and the stock market.
On the other hand, when shortterm rates are rising more rapidly than longterm rates, the result is a bear flattener. When the yields on shortdated bonds rise more quickly than yields on longterm bonds, eventually, both interest rates start to converge. The convergence, in turn, flattens the yield curve when plotted on a graph. For example, on February 9, the yield on a 3month Tbill was 1.55% and the yield on a 7year note was 2.72%. The spread during this time was 2.72%  1.55% = 117 basis points. On April 1, the 3month bill yields 2.05%, while the 7year note yields 2.80%. The spread is now smaller at 2.80%  2.05% = 75 basis points, leading to a flatter yield curve.
As explained above, the increase in shortterm rates is usually due to actions by the government through the Federal Reserve, which decides to increase rates to slow economy growth and/or the expected inflation growth. In other words, a flattening curve is typically an indication of a slowing economy and is not beneficial to banks as funding costs increase. Therefore, a bear flattener is considered a bearish indicator on the economy.
A bear flattener may be a signal to investors that the higher interest rates on shortterm bonds may produce a higher return than stocks will in the shortterm. In effect, increasing interest rates drives shortterm bond prices down, increasing their yields rapidly in the short term, relative to longterm securities. In this case, investors will sell their stocks and invest the proceeds in the bond market, which will lead to a bearish stock market.

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