In the context of the bond market, what does a steepening yield curve indicate?

A steepening yield curve indicates that long-term interest rates are rising at a faster pace than short-term interest rates. This situation often arises when investors expect stronger economic growth in the future, leading to a higher demand for credit. As a result, they anticipate that long-term rates will increase due to higher inflation and stronger consumer demand, prompting lenders to charge more for long-term loans.

Typically, a steep yield curve is seen as a sign of investor confidence about future economic conditions. While short-term rates might be held lower due to monetary policy from central banks, the increase in long-term rates reflects optimism about growth and possibly inflation. This differentiation between short and long-term rates is crucial in understanding investor expectations of the economic landscape.