Current interest rate curve is humpbacked.

• upward sloping in the short term, but downward sloping in the long term

Traditional theories of term structure

• Market segmentation/ Preferred habitat
  • Some investors like long maturities, others like short maturities
  • The preferred habitat is a milder version of the market segmentation
    • investors have preferred maturities in which to invest, but if expected return differentials become large they will switch habitats
• Unbiased expectation hypothesis
  • The forward rates implied by the term structure are equal to the market’s expectation of future spot rates over the same period
• liquidity preference
  • Investors require a premium for investing in longer-term debt

Why humpbacked?

In normal cases, longer maturity, higher yield. The liquidity preference theory states that there will be some compensation for holding a longer, less liquid asset than short term asset.

• 现象：长期利率低于中短期利率
• 格林斯潘长期利率之谜

possible explanation

• Dynamic term structure model (DTSM)
  • 债券收益率=实际利率预期+通货膨胀预期+期限风险溢价
• 倒挂的原因
  • 流动性出现问题，市场对短期资金需求增加，导致短端利率上升。而市场对未来经济不看好，导致长端利率下降。导致利率倒挂
• 长期经济疲软，央行会维持低利率政策；而中短期经济不景气