Which statement about the treasury yield curve is true?

The treasury yield curve typically represents the relationship between interest rates and the maturity dates of U.S. government bonds. When the yield curve is upward sloping, it indicates that long-term bonds have higher interest rates compared to short-term bonds. This situation reflects investor expectations of economic growth and inflation; investors demand a higher yield for taking on the additional risk associated with longer-term investments. As time increases, so does the uncertainty surrounding economic conditions, making longer maturities require a premium in the form of higher yields to attract buyers.

A normal upward sloping yield curve is a sign of a healthy and growing economy, as it suggests that investors expect better returns in the future. Short-term rates are lower because they are less risky and align with more immediate liquidity needs. Therefore, the accurate understanding of the treasury yield curve is crucial for financial planning and investment strategies, as it provides insights into market expectations and economic conditions.