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For instance, in November 2004, the yield curve for UK Government bonds was partially inverted.

The yield for the 10-year bond stood at 4.68%, but was only 4.45% for the 30-year bond.

The market's anticipation of falling interest rates causes such incidents.

In addition, lenders may be concerned about future circumstances, e.g.

First, it may be that the market is anticipating a rise in the risk-free rate.

If investors hold off investing now, they may receive a better rate in the future.

This explanation depends on the notion that the economy faces more uncertainties in the distant future than in the near term.

This effect is referred to as the liquidity spread.

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