There are three theories about the term structure of interest rate: liquidity premium (preference) theory, expectation theory and market segmentation theory.
The liquidity premium theory is easy to understand. Investors prefer short-term securities trading to long-term securities trading, because short-term securities can be quickly converted into cash flow. But countries and enterprises like long-term because money can be used for a long time. At this time, if investors hold long-term securities, they need some liquidity premium to compensate. So the yield curve will rise.
What is expectation theory? In short, the slope of the yield curve is determined by people's expectations of future short-term interest rates. When people's expectations of short-term interest rates increase, the demand for short-term loans will decrease, and they will turn to long-term loans. At this time, investors will prefer short-term bonds to long-term bonds. So the yield curve will rise.
But what kind of investment is decided by investors themselves. For example, the elderly prefer stable and long-term investment. For some young people, stocks, funds and even futures are their investment choices, because they have a heart of making big money and are not afraid of high risks. This is the market segmentation theory. Whether investors invest long-term or short-term depends on their needs and expectations.
Understand it briefly.