>SPECIAL REPORT (ECONOMIC RESEARCH)

When long-term interest rates dominate the yield curve

Since end-2008, volatility in long-term (10-year) interest rates has exceeded volatility in short-term (2-year) interest rates. It is therefore long-term interest rates that primarily determine the slope of the yield curve. There are several possible explanations for this phenomenon: 1- money market rates are "politically" frozen at their lowest possible level. Only the long end of the curve is free; 2- there is a liquidity trap phenomenon; 3- public finances are deteriorating drastically; 4- inflationary risks are on the rise. Question: is this situation set to last? Answer: in all likelihood, despite some governments’ determination to implement exit strategies.

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