53.10
10. The February 1999 WSJ contained an inverted yield curve (yields for long-term bonds are lower than for short-term bonds). We talked about 3 factors that drive the yield curve and pointed-out that two of those factors tend to result in an upward-sloping (non-inverted) yield curve. The US Treasury had just announced that it was going to issue far fewer long-term bonds than in the past. Imagine your boss (either a bond trader or a chief financial officer trying to plan for a corporate debt issue) asks you what is going on. Identify which of the three factors driving the yield curve the Treasury's decision impacted and why it resulted in an inverted yield curve. [6 pts]