A market expectation of lower interest rates in the future that outweigh the maturity risk premium leads to an inverted yield curve.

Question

Quizplus · Accepted Answer

An inverted yield curve occurs when short-term interest rates are higher than long-term interest rates. This can happen when the market expects lower interest rates in the future which reduces the demand for long-term bonds and outweighs the maturity risk premium.

A Market Expectation of Lower Interest Rates in the Future