According to the Liquidity Preference Theory of the term structure of interest rates, an increase in the yield on long-term corporate bonds versus short-term bonds could be due to .

an increase in expected interest rate volatility.

Explanation:

Liquidity preference theory is a macroeconomic model developed by the world renowned economist, John Maynard Keynes. It is a theoretical framework that states that investors generally would want a higher interest rate on any securities or stocks with long-term maturity rate and having greater or more associated risk because, ceteris paribus investors prefer a highly liquid assets or cash.

This simply means that, ceteris paribus (all other things being equal), investors would always choose a more liquid asset, at a similar rate of return with other assets.

According to the Liquidity Preference Theory of the term structure of interest rates, an increase in the yield on long-term corporate bonds versus short-term bonds could be due to an increase in expected interest rate volatility because an investor would generally expect to recoup a higher return on investment on the long-term corporate bond.

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