If the Treasury yield curve is flat
A) Short-term interest rates are expected to be falling under the term premium hypothesis
B) Short-term interest rates are expected to be flat under the expectations hypothesis
C) One cannot make inferences about the expected path of short-term interest rates
D) Both a and b

Question

Quizplus · Accepted Answer

A flat Treasury yield curve suggests that short-term interest rates are expected to remain stable if one follows the expectations hypothesis, and under the term premium hypothesis, it might indicate expectations of falling short-term rates, as investors demand less of a term premium for longer maturities in anticipation of lower future rates.

If the Treasury Yield Curve Is Flat