Answer: High demand for bonds

## Explanation Yields narrow (decrease) when bond prices increase. This typically occurs when there is **high demand for bonds**, as investors are willing to pay higher prices for bonds, which pushes yields down. Let's analyze each option: **A. Weak financial markets** - Weak financial markets typically lead to risk aversion, which might increase demand for safe-haven assets like government bonds. However, this could actually cause yields to narrow (decrease) as bond prices rise due to increased demand. But this is not the most direct or likely scenario compared to option B. **B. High demand for bonds** - This is the correct answer. When demand for bonds increases, bond prices rise, and yields (which move inversely to prices) decrease or 'narrow'. **C. Slowdown in market-making activity** - This would typically reduce liquidity in bond markets, which could lead to wider bid-ask spreads and potentially higher yields as investors demand compensation for reduced liquidity. **Key Concept**: The relationship between bond prices and yields is inverse: - When bond prices ↑, yields ↓ (narrow) - When bond prices ↓, yields ↑ (widen) High demand for bonds directly causes bond prices to increase, which in turn causes yields to narrow.

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