Steepening and flattening: how the curve's shape changes

Why it matters

Kitalpha’s yield curve page draws today’s curve, as of 2026-09-15, beside the curve from 2025-09-15. Between those dates the 2-year moved from 3.54% to 4.67% and the 10-year from 4.05% to 5.00%. A reader who has followed the 10-year alone knows one of those moves. The relation between the two, whether the gap between them widened or narrowed, is a fact about the curve that no single tenor can show, and it is the idea here.

The concept

A yield curve can change in two ways. It can shift, with every tenor moving by about the same amount, so the line rises or falls but keeps its shape. Or its shape can change, with the two ends moving by different amounts. The second is the usual case, because the two ends of the curve answer to different things. Short tenors follow the policy rate, which the central bank sets and signals; long tenors carry expectations about growth and inflation over years, together with the extra price lenders ask for committing money that long. News about the policy rate moves the front of the curve more than the back; news about long-run inflation does the reverse.

The names for a shape change are simple. When the gap between a shorter and a longer tenor widens, the curve steepens between them; when the gap narrows, it flattens. On a spread record, which holds the longer yield minus the shorter, steepening is a rise in the spread and flattening is a fall, and the change over any period is today’s spread minus the spread at the start. Because the spread is a difference, that change equals the longer tenor’s move minus the shorter tenor’s move over the same period; a parallel shift, with equal moves, leaves the spread unchanged.

Two consequences follow. First, steepening and flattening say nothing about direction. A curve can flatten while every yield rises, if the short end rises by more; it can steepen while every yield falls, if the short end falls by more. Reading a curve as having “gone up” or “gone down” describes a shift and misses the change of shape entirely. Second, the change is invisible to a reader who watches one tenor. The 10-year’s move over a year is one number; whether the curve steepened is that number minus the 2-year’s move, and the second half is the part a headline about “the yield” leaves out.

The curve record makes the comparison directly, holding today’s curve beside the curve one week, one month and one year earlier, each a full set of tenors on its own date. The spread series makes the same comparison day by day, since each day’s value is that day’s subtraction, so a year’s change can be read from either record. The chart below draws today’s curve as a solid line and the curve a year ago as a dashed one. Look at the vertical distance between the lines at the short end and at the long end; if the distances differ, the curve changed shape, and the difference between them is the change in the slope.

Worked example

Take the curve record with its two dates, 2026-09-15 and 2025-09-15. The steps below compute the 2s10s spread on each date, take the change over the year in percentage points and basis points, then read each tenor’s own move over the year so the slope change can be seen as the difference between them. Every figure comes from the curve record’s two dated curves.

What to read off the steps. The third and fourth lines are the change of shape between the two tenors: positive is steepening, negative is flattening, and the size is in basis points. The fifth and sixth lines are the two moves that produced it, and their difference reproduces the fourth line; if they had been equal the curve would have shifted without changing slope. Neither the direction of the two moves nor the change of slope says why the curve moved, and none of the lines is a forecast of where it goes next.

Faded example

Now the same comparison read from the 2s10s spread series as of 2026-09-15, which stores the subtraction day by day. Today’s spread and the spread 250 trading days earlier are given. Complete the last step: the change in basis points.

Retrieval check

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