Economics Bonds Questions
The impact of yield curves on bond prices is that they can directly affect the value and pricing of bonds. When the yield curve is upward sloping, with longer-term yields higher than shorter-term yields, it indicates expectations of future interest rate increases. In this case, bond prices tend to decrease because investors can earn higher yields by investing in newly issued bonds with higher interest rates. Conversely, when the yield curve is downward sloping, with longer-term yields lower than shorter-term yields, it suggests expectations of future interest rate decreases. In this scenario, bond prices tend to increase as investors are willing to pay a premium for the higher fixed interest rates offered by existing bonds.