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    Question

    Consider the following statements: 1.An upward

    slope is obtained if the yields for different tenures of bonds are mapped. 2.When yields for longer duration bonds are higher than the yields on shorter duration bonds, yield inversion occurs. Which of the above statements is/are correct?
    A Only 1 Correct Answer Incorrect Answer
    B Only 2 Correct Answer Incorrect Answer
    C Both are correct Correct Answer Incorrect Answer
    D None of the above Correct Answer Incorrect Answer

    Solution

    Yield curve inversion takes place when the longer term yields falls much faster than short term yields. This happens when there is a surge in demand for long term Government bonds (e.g. 10 year US Treasury bond) compared to short term bonds.

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