Post Yellen Thoughts: The US Bond Market always leads the policy makers. Yesterday, the announcement of a potential move in Fed Funds rate by mid 2015 led to major moves on the US yield curve. As EM guys, we always think a flattening of the long end (5-10s) is a bullish backdrop for our markets.
The theory is that the 5yr bond is the greatest indicator of economic strength, thus pushing yields higher on rate expectations that are medium term oriented.
The longer end (10yr) will more or less be anchored by inflation expectations, thus the curve will "flatten on the long end" meaning yields will go up in the 5yr part of the curve and yields will not really move in the long end.