The ECB report stated on 2006: “Despite the overall increase in euro area long term bond yields, the euro area yield curve flattened in 2006. This is reflected in a corresponding decline of the “term spread”, measured by the difference between the yield on a ten-year government bond and the three month EURIBOR. The euro area term spread declined by some 50 basis points in the course of 2006 and reached the relatively low level of about 30 basis points by the end of the year.”

Typically long-term interest rates are above short-term rates. In terms of the Fisher effect, what would that pattern say about expected inflation and/or the expected future real interest rate?