Asked by Massiel Toribio Peralta on Apr 25, 2024
Verified
In the early 1980s, the Treasury yield curve had a severe downward slope with short-term yields near 20% and long-term yields below 15%. Explain how such a pattern might occur.
Treasury Yield Curve
A graphical representation showing the yields on U.S. Treasury securities at fixed maturities, indicating the relationship between interest rates and the length of time to maturity.
Short-term Yields
Interest rates or returns on investments or securities that mature in a short period, typically less than one year.
- Clarify the effects of changing interest rate landscapes on the valuation and income from bonds.
Verified Answer
RB
Ronnie Brokenberry7 days ago
Final Answer :
The downward slope occurs because the expected inflation premium is declining. The decline in the inflation premium is significant enough to overcome the interest rate risk premium.
Learning Objectives
- Clarify the effects of changing interest rate landscapes on the valuation and income from bonds.
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