Economics · Financial Markets
If the government announces an expansionary infrastructure fiscal plan funded by increased market borrowing while private sector credit demand is simultaneously peaking, what is the most likely structural impact on the yield curve and commercial banks' portfolios?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1The yield curve will steepen as long-term yields rise under bond supply pressure, leading to mark-to-market losses in the Available-for-Sale (AFS) and Held-for-Trading (HFT) portfolios.✓
- 2The yield curve will steepen, causing mark-to-market losses specifically within the banks' Held-to-Maturity (HTM) portfolios.
- 3The yield curve will shift downward symmetrically across maturities as public spending induces high systemic money supply.
- 4The yield curve will flatten rapidly as short-term yields spike faster than long-term yields due to central bank interventions.
Correct answer
The yield curve will steepen as long-term yields rise under bond supply pressure, leading to mark-to-market losses in the Available-for-Sale (AFS) and Held-for-Trading (HFT) portfolios.
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