When long-term rates are lower than short-term rates,the market is signalling that it expects short-term rates to fall.

Question

Quizplus · Accepted Answer

When long-term rates are lower than short-term rates, it is typically a sign that the market anticipates a decline in short-term rates. This is because long-term rates reflect expectations for future economic conditions, while short-term rates are more sensitive to current economic conditions. Therefore, if the market expects economic conditions to worsen, it may anticipate a decrease in short-term rates and price long-term rates accordingly.

When Long-Term Rates Are Lower Than Short-Term Rates,the Market Is