Hi all, What is the shape of the yield curve according to this and it depends on what/ S
It depends on the expectation. Expecting rates to rise, upward sloping Expecting rates to fall, downward sloping Expecting rates to stay same, horizontal/flat
the shape can be any sort (inverted, flat, upward sloping… or any hybrid thereof). the shape depends on the future expectations of short term rates
depends on future interest rates (and inflation rates) steady inflation = flat increasing inflation = upward-sloping analogous to steady interest rates = flat increasing interest rates = upward-sloping
tvPM, Expectation of what- future interest rate, expectation about inflation etc? Can you please elaborate. S
pure expectations theory as the name applies is that future interest rates are today’s expectations. so whatever investor thinks today, is gonna happen tomorrow to interest rates, hence thats the kind of yield curve you get.
expectations of future interest rates…whether they will rise, drop, or stay the same.
If investors think, inflation is going to be stable, then what will be the shape of the yield curve according to this? S
if inflation is going to be stable, then interest rates gonna stay stable, so flat!!
i don’t think ppl read the replies to their own threads
supersharpshooter, I did read your answer but just not able to cohesively comprehend the relationship! S