A flat term structure implies that investors expect future short-term interest rates to:
A)decrease.
B)increase.
C)be the same as the current rate.
D)none of the options given.

Question

Quizplus · Accepted Answer

A flat term structure means that yields on bonds of different maturities are relatively the same, indicating that investors expect short-term interest rates to remain the same as the current rate in the near future. This is because the yield curve usually slopes upwards, meaning that long-term bonds pay higher yields than short-term bonds, to compensate investors for the added risk of holding a bond for a longer period of time. When the yield curve flattens, it indicates that investors are not expecting any significant changes in the interest rate environment in the short term.

A Flat Term Structure Implies That Investors Expect Future Short-Term