Question

If the yield curve is downward sloping, what is the yield to maturity on a 10-year Treasury coupon bond, relative to that on a 1-year T-bond? and why?

.	The yield on the 10-year bond is less than the yield on a 1-year bond
	The yield on a 10-year bond will always be higher than the yield on a 1-year bond because of maturity premiums.
	It is impossible to tell without knowing the coupon rates of the bonds.
	The yields on the two bonds are equal.
	It is impossible to tell without knowing the relative risks of the two bonds

Answer 1

Yield curve is the plot of yield of bonds of different maturities. If the yield curve is downward sloping, it implies that the longer maturity bonds will have lower yield than shorter maturity bonds. Therefore, 1 year treasury bond will have a higher yield than the 10 year treasury bond.

So the correct option is the 1st one.

This yield curve is also known as inverted yield curve and is a signal of upcoming recession.