[Verse 1] When investors peek into tomorrow's glass They wonder what short rates will be Pure expectations theory takes this mass Of crystal ball prophesy The yield curve bends to future's whispered call Long bonds reflect what's yet unseen If rates climb high, the curve stands tall If rates drop low, it leans [Chorus] Expectations drive the curve's direction Future short rates paint the line Pure theory, no risk correction Just forecasts crystalline What goes up in rates tomorrow Makes long yields ascend today What falls down brings yield curve sorrow Expectations lead the way [Verse 2] Unbiased expectations add one twist To this forecasting game Forward rates can't be dismissed They predict without shame Take today's two-year minus one-year rate That forward tells the tale Of where one-year will navigate When current bonds grow stale [Chorus] Expectations drive the curve's direction Future short rates paint the line Pure theory, no risk correction Just forecasts crystalline What goes up in rates tomorrow Makes long yields ascend today What falls down brings yield curve sorrow Expectations lead the way [Bridge] Upward slopes mean rates ascending Downward slopes show rates decline Flat curves tell of rates transcending Current levels by design No liquidity premiums here No risk adjustments made Just pure predictions crystal clear In yield curve masquerade [Outro] When curves puzzle your examination Ask what rates tomorrow bring Expectations theory's explanation Makes the yield curve sing
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