Question

What does an upsloping yield curve reveal about investor expectations?

a) Market participants are expecting higher rates in future and an expanding economy.

b) Market participants are expecting lower rates in the future and a recession.

Answer 1

ans =option a

Yield curves trace the relation between rates of interest & the maturity of Treasury securities (in U.S) at a given time. The shape, slope & level of yield curves may fluctuate over time with fluctuations in rates of interest.

The yield curve’s slope gives an essential clue to the direction of future short run rates of interest; an upward sloping curve usually signifies that the financial markets anticipate greater future rates of interest; a downward sloping curve denotes expectations of lower interest rates in the future. The shape of a yield curve also may give clues to future ROI movements—a humped curve denoting that short run rates (over the coming year) are anticipated to escalate, but that over the long term (many years) rates are expected to decline. The level of the yield curve in general may also move up / down—at least in part due to the changes in inflationary anticipations over time.