Parallel Shifts in the Yield Curve

An analyst gathers the following information on current and expected interest rates: | Term | Current rate | Expected rate | |---------|--------------|---------------| | 6-month | 1.25% | 1.30% | | 1-year | 1.55% | 1.60% | | 3-year | 2.05% | 2.10% | | 5-year | 2.45% | 2.60% | | 10-year | 2.75% | 2.90% | The expected change in the yield curve is _most likely_ characterized as:

Incorrect. In the case of an upward-sloping yield curve, such as in this example, a flattening yield curve shift is characterized by a larger increase in short-term rates compared to the increase for long-term rates. This is not seen in this example.

Incorrect. A parallel shift is characterized by an equal change in rates for all maturities, which is not seen in this example.

Correct. In the case of an upward-sloping yield curve, a steepening yield curve shift is characterized a larger increase in long-term rates compared to the increase for short-term rates. In this example, the six-month, one-year, and three-year rates are expected to increase by five basis points, while the five-year and 10-year rates are expected to increase by 15 basis points.

flattening.

steepening.

a parallel shift.