Based on the expectation theory with the term premium , when short term interest rates are not expected to change, the yield curve will look like?

b) According to the expectation theory with the term premium , what do the yield curves tell us about the public’s expectations of future movement of short-term interest rates?

Interest Rate (annual rate) January 15, 1981 March 28, 1985 May 16, 1980 March 3, 1997 February 6, 2006 July 7, 2014 10 15 20

Case 1.The steep inverted yield curve on January 15,1981

Case 2. The flat one of Feb 6, 2006

Case 3. The very steep, upward-sloping yield curves on March 28,1985 and July 7,2014

If short-term interest rates have not been expected to adjust, it means that the economy is struggling and interest rates are low and, most significantly, the situation-based yield curve is flattening, thereby narrowing the soread between five years and ten years.

People respond accordingly in anticipation of vulnerabilities and prefer to save even more than just spending.

As per the theory of expectations, the yield curve is a perfect barometric as to how the market performs, as for example whenever the yield curve flipped in 2019 in Germany and the US it firmly foresees and predicts that the economy is about to recession and therefore people are looking to engage in long-term bonds which force interest rates down for 20 years and 30 years whereas the current outlook looks grim and so interest rates are going up and generating the exact opposite situation.

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