notes/10 - Projects/CSC/Chapter 7/Expectations Theory.md
2026-03-30 03:23:09 -04:00

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Under Expectations Theory, the shape of the yield curve tells you what the market thinks rates will do:

  • Upward sloping (normal) → rates expected to rise
  • Downward sloping (inverted) → rates expected to fall
  • Humped → rates expected to rise then fall
  • Flat → rates expected to stay the same

The yield curve is essentially the market's collective forecast for future interest rates.