Which of the following is a correct statement about interpreting an increase in the upward slope of the term structure?

Question

Quizplus · Accepted Answer

An increase in the upward slope of the term structure may result either from expectations of higher real interest rates or expectations of higher inflation. This is because longer-term bonds are more exposed to inflation fluctuations and investors require higher compensation for this risk in the form of higher bond yields. Additionally, if investors expect higher future real interest rates, they would demand higher bond yields as well to compensate for the opportunity cost of holding longer-term bonds. Therefore, an increase in the upward slope of the term structure can result from either factor.

Which of the Following Is a Correct Statement About Interpreting