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.