Answered step-by-stepSix months ago, the yield curve exhibited a slight downward slope....
Six months ago, the yield curve exhibited a slight downward slope. Over the last six months, the long-term yields declined, while short-term yields remained the same. Analysts stated that the shift was due to revised expectations of interest rates.
- Given the shift in the yield curve, does it appear that firms increased or decreased their demand for long-term funds over the last six months?
- Interpret what the shift in the yield curve suggests about the market's changing expectations of future interest rates.
- Recently, an analyst argued that the underlying reason for the yield curve shift was that many of the large U.S. firms anticipate a recession. Explain why an anticipated recession could force the yield curve to shift as it has.
- What could the specific shift in the yield curve signal about the ratings of existing corporate bonds? What types of corporations would be most likely to experience a change in their bond ratings as a result of the specific shift in the yield curve?
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