Financial Markets and Institutions (2-downloads)

2. Yield curves usually slope upward.

3. When short-term interest rates are low, yield curves are more likely to have

a steep upward slope, whereas when short-term interest rates are high, yield

curves are more likely to be inverted.

The theory also helps us predict the movement of short-term interest rates in the

future. A steep upward slope of the yield curve means that short-term rates are expected

to rise, a mild upward slope means that short-term rates are expected to remain the

same, a flat slope means that short-term rates are expected to fall moderately, and an

inverted yield curve means that short-term rates are expected to fall sharply.

M I N I - C A S E