Rates across the maturity spectrum change by a constant amount and the slope of the yield curve remains consistent.
- Twist: The slope of the yield curve becomes flatter (the spread between short and long term yields narrows) or steeper (the spread between short and long term yields widens).
- Butterfly: Change to the curvature of the yield curve.
Positive butterfly: The yield curve goes loses some of its “hump” and becomes straighter.
Negative butterfly: The yield curve takes on more of a hump and ceases to look similar to a straight line.