if demand is bigger than supply for long maturties…then prices would go up, yields down and the curve would be downward sloping. is this right? kinda confused because of the price thing
nobody knows?
Depends on the equilibrium for the other maturities?
well i dont know. but my thought is just, that if demand rises,and supply is small, prices will rises, so will yields fall?
yellayella Wrote: ------------------------------------------------------- > if demand is bigger than supply for long > maturties…then prices would go up, yields down > and the curve would be downward sloping. is this > right? > > kinda confused because of the price thing The market segmentation theory describes the yield curve as a set of maturity segments comprising participants with a business need for specific maturities. The shape of the yield curve, consequently, arises from the supply-demand equilibrium within each maturity segment. Under the segmented markets theory, participants in one segment would be indifferent to supply-demand forces in adjacent maturity segments. A variant of the segmented markets theory, the preferred habitat theory, allows for segment participants to be induced to leave their preferred habitat when there are sufficient incentives; i.e., higher yields. Empirical evidence generally supports the market segmentation theory at the short end of the yield curve (Mustafa and Rahman, 1995, Park and Switzer, 1997, Simon, 1991, and Taylor, 1992), but research is scarce for longer dated debt.
the long end of the curve will be lower, yes. The shape of the curve will depend on the supply/demand at other maturities as well though.
curve can take ANY shape, that is the pt, YC is dictated by maturity preferences.
daj224 Wrote: ------------------------------------------------------- > curve can take ANY shape, that is the pt, YC is > dictated by maturity preferences. absolutely correct