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Over the last six months, the long-term yields declined, while short-term yields remained the same. Analysts...

Over the last six months, the long-term yields declined, while short-term yields remained the same. Analysts stated that the shift was due to revised expectations of interest rates. Given the shift in the yield curve, does it appear that firms increased or decreased their demand for long-term funds over the last six months?

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Answer #1

As the long term yields decline this shows that the demand has also been low. Assuming supply of funds has remained constant, if the demand for funds goes down, the cost of fund which is interest rate also declines. Hence in this case the firms are demanding lesser long term funds thus causing a delcine in long term interest rates.

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