Suppose that financial market participants expect short- term rates to decrease in the future. Given this information, we would expect:

Question

Quizplus · Accepted Answer

When market participants expect short-term rates to decrease in the future, it typically leads to a downward sloping yield curve. This is because the yields on longer-term securities are expected to be lower than the yields on shorter-term securities, reflecting the anticipated decline in rates.

Suppose That Financial Market Participants Expect Short- Term Rates to Decrease