I have a problem in understanding following strategies:

  1. bullish flattening trades

  2. bearish flattening trades

  3. bullish steepening trades

  4. bearish flattening trades

Can anyone give me an explanation about the strategies above and why they give different rates of return? Thank you.

  • 1
    $\begingroup$ Bond traders care both about the general level of interest rates and the "slope". In English "flattening" refers to a decrease in slope and "steepening" refers to an increase in slope. (The slope is the difference between long term rates and short term rates). A "bull trade" is a trade that makes money if interest rates go down, and a "bear trade" if they go up. A "bull steepening trade" is a combination of trades that makes money if interest rates go down AND the slope increases. And similarly for the other 3. These 4 trades are "double bets" on two aspects of rates: the level and the slope. $\endgroup$
    – Alex C
    Commented Apr 18, 2018 at 22:50
  • 1
    $\begingroup$ I'm no expert, but I bet 2 and 4 are pretty similar. $\endgroup$
    – Evan
    Commented Feb 28, 2020 at 4:06
  • $\begingroup$ @Evan, nice catch and funny comment $\endgroup$
    – HHest
    Commented Jan 12 at 8:59

1 Answer 1


Please refer to the picture below for what each trade is betting on.

enter image description here

As an example, in a bull flattening trade, you're betting that rates will decline AND the yield curve will flatten. The flattening aspect can be easily expressed by buying a long-term bond, while simultaneously shorting a shorter-term bond. If you do NOT structure the two legs to be DV01 neutral, but with a residual long duration exposure, you'd have a bull flattener going on (in practice, this is rarely done). To more precisely express a "bull flattening" view, you need to venture into interest rate options. For example, buying long-rate receivers while selling short-rate receivers would accomplish the goal; this structure is known as a conditional bull steepener.

Other trades can be structured analogously.

  • $\begingroup$ Could you talk a bit more on why it's done this way in practice (the benefit of using options against vanilla bonds / how about bond futures etc.) $\endgroup$
    – user34829
    Commented Jul 5, 2019 at 15:00
  • $\begingroup$ wow, this is awesome, do you have a textbook recommendation for all this? $\endgroup$
    – S Meaden
    Commented Aug 9, 2019 at 18:44

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