There are three factors that can affect the shape of the Treasury yield curve (r* tt , IP tt , and MRP tt ) and five factors that can affect the shape of the corporate yield curve (r* tt , IP tt , MRP tt , DRP tt , and LP tt ). The yield curve reflects the aggregation of the impacts from these factors. Suppose the real risk-free rate and inflation rate are expected to remain at their current levels throughout the foreseeable future. Consider all factors that affect the yield curve. Then identify which of the following shapes that the US Treasury yield curve can take?
1. Upward-sloping yield curve
2. Downward-sloping yield curve
3. Inverted yield curve