Bull Steepener

A bull steepener is a yield curve regime where bond prices rise (yields fall) and the curve steepens (the spread between long and short rates widens). This typically occurs when the Fed is cutting rates or the market expects imminent easing.

The mechanics:

• Short-term yields fall rapidly as the market prices in rate cuts
• Long-term yields also fall, but by less, because they embed longer-term expectations and term premium
• The net effect is a steeper curve

Bull steepeners are historically associated with the early stages of economic downturns, when the Fed begins an easing cycle. The pattern appeared prominently in 2001 (post-dot-com), 2007-2008 (financial crisis), and 2019-2020 (pre-COVID easing).

For portfolio positioning, bull steepeners favor:

• Long duration (benefiting from falling rates)
• Steepener trades (long the long end, short the short end on a duration-weighted basis)
• Receivers in interest rate swaps

The regimes tool classifies each trading day into one of five regimes (Bull Steep, Bull Flat, Bear Steep, Bear Flat, Consolidation) based on rolling changes in the level and slope of the curve.