A bull flattener effect occurs when long term rates decrease so that they converge with short term rates. Normally, the yield curve is humped, the effect of a bull flattener is a flattening of lthe yield curve.
What happens during a bull flattening cycle is long term bond yield decrease while short term bond yields increase. This produces a yield curve that is beneficial for the major bond investors. Imagine the yield curve to be a concave line on an x and y axis plane.
To understand this concept, imagine the yield curve as a connected line of points on the x and y axis plane where the x axis is time until maturity and the y axis is the interest rate. The less concave the line is the closer the short term rates are to the long term rates.
Experienced bond investors study the yield curve and trade the spread in between long term bonds and short term bonds with the intention of profiting from the difference between the two rates.
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