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YouTube T4-23: Fixed Income: Twists are steepening or flattening of the yield curve

Nicole Seaman

Director of FRM Operations
Staff member
The drawback of yield-based duration and convexity is that implicitly they must assume a parallel shift in the rate curve. While there can be many non-parallel shift, the two most common are twists and butterflies. A twist is when the curve steepens or flattens. A STEEPENING is when either (i) long-term rates increase by more than short-term rates, or (ii) short-term rates fall by more than long-term rates. A FLATTENING is when either (i) longer-term rates fall by more than shorter-term rates, or (ii) shorter-term rates rise by more than longer-term rates.

David's XLS is here: https://trtl.bz/2v5jXvc

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