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KNOWLEDGE CHECK Look at the below yield curve inversion chart. What is most likely to happen as a result of the most recent yield curve inversion shown? GDP will dip Term premium will rise. GDP will rise. Term premium will remain constant Click to openiclose chart PREV SUBMIT 38-52movements-in-the-yield-curve- KNOWLEDGE CHECK Line Chart 9 Compare 9 Actions 9 Edit /2910t P YILDIGT30 Govt) FEDLOJ Index Last Price .0603 D SMax Quartely GDP NVERT F Index Key Events 0268 Mov Avgs | Local CeY Volume -30.80 E’s YIELD C D Chart Content Table 3.0000 LaeB 2s000 Term p F20000 FLS0001 GDP w FL0000 Term pr 3000 – Lended-Vw 1s-BMarage omber Medut C

The correct answer is GDP will dip Explanation: Yield curve: It is a plot of yields against various maturities. Yields are plotted in the vertical axis and maturities on the horizontal axis. It gives an overview of the interest rates in the market. When yields are increasing in the future, yield curve is upward sloping and vice versa. The yield curve can be categorized into three broad types namely normal yield curve, flat yield curve and inverse yield curve. The normal yield curve is defined as the yield curve which is upward sloping in shape. The inverse yield curve is defined as the yield curve which has a shape of downward sloping. The flat yield curve is described as the yield curve that is horizontal in nature As shown in the following figure, yield curve is downward sloping, so there is a chance of dip in the GDP in future.

What our team says

Look at the below yield curve inversion chart

In the market today, we are witnessing a trend where yields on bonds are inversely proportional to prices. This is often referred to as a yield curve inversion. What does this mean for you and your portfolio? Let’s take a closer look at what causes this inverse relationship, and what investors can do to capitalize on it.

What is a yield curve inversion?

A yield curve inversion occurs when long-term interest rates (i.e. yields) are higher than short-term interest rates. This indicates that investors are concerned about future inflation and believe that the current low levels of inflation will not persist.

What are some factors that can cause a yield curve inversion?

A yield curve inversion occurs when the yields on short-term debt securities (i.e. bonds) are higher than the yields on long-term debt securities (i.e. mortgages). This can be caused by a number of factors, including:

1) A decline in inflation rates, which makes it more expensive to borrow money for longer periods of time
2) A decline in consumer confidence, which could lead to a decrease in spending and a decrease in demand for long-term debt securities
3) A slowdown or decline in economic activity, which could lead to a decrease in corporate profits and a decrease in demand for long-term debt securities
4) An increase in interest rates, which would make it more expensive to borrow money for shorter periods of time

How does the yield curve inversion impact investors?

The yield curve inversion has become increasingly important to investors as it has signaled a slowdown in the economy. When the yield curve inversion occurs, this means that long-term yields (yields on 10-year Treasury bonds) are lower than short-term yields (yields on 3-month Treasury bills). This is because investors are placing more trust in longer-term investments, such as bonds, and are therefore willing to pay higher prices for them.

The yield curve inversion typically indicates that there is a market slowdown, and can cause stocks and other assets to decline. Additionally, when the yield curve inverts, demand for loans from banks drops, since lenders are no longer getting as high of a return on their loans. Therefore, when the yield curve inverts, it can have a significant impact on the overall economy.

Conclusion

As you can see in the below yield curve inversion chart, the yield curve has inverted. This typically happens when there is too much demand for a product and not enough supply. When this happens, companies have to raise their prices to make up for the shortage, which ultimately leads to higher consumer costs and less profit for businesses. Now is a good time to be aware of this trend and plan accordingly so that you don’t get caught off guard by price increases.