The yield curve or the term structure of interest rates is typically downward sloping when:
A) short-term Treasury interest rates are lower than long-term Treasury interest rates
B) short-term and long-term Treasury interest rates are the same
C) long-term Treasury interest rates are lower than short-term Treasury interest rates
D) long-term Treasure interest rates are higher than short-term Treasury interest rates

Question

Quizplus · Accepted Answer

A downward sloping yield curve occurs when long-term Treasury interest rates are lower than short-term Treasury interest rates. This is also known as an inverted yield curve and it suggests that the market is expecting a recession or economic slowdown in the future.

The Yield Curve or the Term Structure of Interest Rates