b. Explain this yield curve using the unbiased expectations theory and the liquidity preference theory. proposes that the rise in the yield curve over the next five years is based on expectations by investors that prevailing interest rates in the market will rise. Liquidity preference theory Unbiased expectation theory buys into the idea that investors have a preference toward more liquid investments, and that borrowers offer higher rates for longer-term investments as a stimulus for longer, more illiquid investment.