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← The Yield Curve
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Question
What does an inverted yield curve typically signal, and why?
1
Strong economic growth, because higher short-term yields reflect strong business borrowing demand
2
That inflation has risen above the central bank's target, pushing long-term yields above short-term yields
3
That the central bank has just cut interest rates, causing short-term yields to fall below long-term yields
4
That investors expect future interest rates to fall — typically because they anticipate slower growth or recession — causing long-term yields to fall below current short-term yields
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