If the yield on short-term securities is greater than the yield on comparable long-term securities, the yield curve will have a
A) positive slope.
B) negative slope.
C) constant slope.
D) zero slope.

Question

Quizplus · Accepted Answer

When the yield on short-term securities is greater than the yield on comparable long-term securities, it indicates that the market expects interest rates to decline in the future. This leads to a downward sloping yield curve, also known as an inverted yield curve. This is because investors are willing to accept lower yields on long-term securities in anticipation of lower interest rates in the future. Conversely, when long-term yields are higher than short-term yields, the yield curve has a positive slope.

If the Yield on Short-Term Securities Is Greater Than the Yield