利率将要降低，怎么和yield curve联系到一起？

问题如下：

Domestic economic activity has been weakening recently. Government yields have remained low for an extended period, and Smith suggests considering investment-grade corporate bonds to provide additional yield above government debt issues. In light of recent poor employment figures and two consecutive quarters of negative GDP growth, the consensus forecast among economists is that the central bank, at its next meeting this month, will take actions that will lead to lower interest rates.

Smith and Carter review par, spot, and one-year forward rates (Exhibit 1) and four fixed-rate investment-grade bonds issued by Alpha Corporation which are being considered for investment (Exhibit 2).

Exhibit 1. Par, Spot, and One-Year Forward Rates (annual coupon payments)

Exhibit 2. Selected Fixed-Rate Bonds of Alpha Corporation

Note: All bonds in Exhibit 2 have remaining maturities of exactly three years

If the Brown and Company forecast comes true, which of the following is most likely to occur? The value of the embedded option in:

选项：

A.

Bond 3 decreases.

B.

Bond 4 decreases.

C.

both Bond 3 and Bond 4 increases.

解释：

Correct Answer: A

All else being equal, the value of a put option decreases as the yield curve moves from being upward sloping to flat to downward sloping (inverted). Alternatively, a call option’s value increases as the yield curve flattens and increases further if the yield curve inverts. Therefore, if the yield curve became inverted, the value of the embedded option in Bond 3 (putable) would decrease and the value of the embedded option in Bond 4 (Callable) would increase.