Which bond is likely to have lower yield compared to a longer-term bond in a normal yield curve scenario?

In a normal yield curve scenario, longer-term bonds typically offer higher yields compared to shorter-term bonds. This is due to the greater risks associated with holding bonds for a longer duration, including interest rate risk and inflation risk. As a result, investors demand a premium for the additional risks, which is reflected in the bond’s yield.

The correct answer indicates that the 2-Year Treasury bond is likely to have a lower yield compared to longer-term bonds like the 5-Year, 10-Year, or 30-Year Treasuries. The shorter maturity of the 2-Year Treasury means that it is less sensitive to changes in interest rates and presents lower risk to investors, which typically results in a lower yield.

In contrast, the yields on the longer-term securities reflect the market's expectation of higher future interest rates and inflation, and thus they command higher yields. This relationship is a fundamental characteristic of a normal yield curve, where yields increase with increasing maturity.