Hickman Savings and Loan is concerned that market conditions might cause the short-term yield curve to be higher than the long-term yield curve.

Hickman Savings and Loan is concerned that market conditions might cause the short-term yield curve to be higher than the long-term yield curve. This negative yield curve means that long-term interest rates are lower than short-term rates. This will cause the bank to shift from its mortgage-based business strategy to one dominated by short-term loans, which is not an area that the bank has much market share. Explain how the yield curve is affected by the following: •Liquidity preferences theory