If the yield curve begins to rise sharply, it is usually an indication that
A) stocks are offering low returns as the economy enters a recession.
B) inflation rates have peaked and are about to decline.
C) bond prices are expected to increase.
D) inflation is starting to increase, or is expected to do so in the near future.

Question

Quizplus · Accepted Answer

A sharply rising yield curve typically indicates that investors expect inflation to increase in the future. Higher inflation expectations lead to higher yields as investors demand more return to compensate for the reduced purchasing power of future interest payments.

If the Yield Curve Begins to Rise Sharply, It Is