Which strategy would typically benefit from a flattening yield curve?

The strategy that typically benefits from a flattening yield curve is longing short-term bonds. In a flattening yield curve scenario, the difference between short-term and long-term interest rates decreases, meaning that the yield on short-term bonds is rising faster than that on long-term bonds or that the yield on long-term bonds is falling.

When investors take long positions in short-term bonds, they can capitalize on the higher yields that come as short-term rates approach long-term rates. This can also mean that short-term bond prices may increase if the market begins to anticipate future interest rate declines, making them an attractive investment in this environment. Furthermore, short-term bonds are generally less sensitive to changes in interest rates than long-term bonds, providing a degree of stability and less risk in a flattening yield curve context.

In contrast, options involving short selling long-term bonds, using credit default swaps, or investing in foreign currencies would not have the same direct benefit from a flattening yield curve, as they involve different risk dynamics and market conditions that do not align with the specific advantages presented by longing short-term bonds in this scenario.