The below are correct statements regarding the "yield curve" except:

Question

BlackTom AI · Accepted Answer

An inverted (downward‑sloping) yield curve can and does occur when market participants expect future short‑term interest rates (or inflation) to fall; hence the statement that "It can never be downward slopping" is false.

1) Relevant concepts
- Yield curve (term structure): plots yields across maturities for bonds with the same credit risk and liquidity.
- Normal (upward) curve: reflects a positive term premium and/or higher expected future short rates.
- Inverted (downward) curve: arises when expected future short rates are low enough that long‑term yields fall below short‑term yields.
- The curve is used as a benchmark for other interest rates (mortgages, bank loans); inversion often signals expected economic slowdown.

2) Step‑by‑step reasoning
- The yield on an n‑year bond is approximately the average of current and expected future 1‑year short rates plus a term premium (expectations hypothesis + liquidity/term premium).
- If expected future short rates are sufficiently lower than today’s short rate, the average can be lower than the current short rate, producing a downward slope (inversion).
- Historical evidence: yield curve inversions have occurred repeatedly and have preceded recessions.

3) Calculation example (intermediate steps)
- Suppose current 1‑year rate = 3.5%; expected 1‑year rates for next 9 years average = 2.5%.
- Approximate 10‑year yield = (3.5 + 2.5*9) / 10 = (3.5 + 22.5) / 10 = 26.0 / 10 = 2.6%.
- 2.6% (10‑yr) < 3.5% (1‑yr): an inverted curve—demonstrates possibility.

4) Why the correct answer is correct
- The option claiming inversion “can never” happen contradicts theory and empirical data; therefore it is the incorrect assertion among the choices and is the exception requested by the question.

5) Why other options are correct (briefly)
- It is used as a benchmark for other debt: true — lenders reference treasury/benchmark yields.
- Normal curve is upward sloping because of interest rate risk/term premium: true.
- It is a line plotting yields by maturity for same‑risk bonds: definitionally true.
- It will slope downward if inflation is expected to decrease: true — lower expected inflation/short rates can invert the curve.

Conclusion: The false statement (the exception) is "It can never be downward slopping..." which matches the provided correct answer.

The below are correct statements regarding the "yield curve" except:单项选择题

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