You observe that the yield on one-year U.S. Treasury debt ishigher than the yield on five-year U.S.Treasury debt. This could be the case because:

1. Impossible. The yield curve can never be downwardsloping.

2. Investors expect inflation will be decreasing.

3. Investors require additional compensation since bonds withshorter maturities are always less liquid.

4. The default risk-premium is decreasing.