The expectations component reflects market expectations of the future path of the policy-controlled short-term interest rates. All else equal, a path that is lower and shallower tends to produce a lower level of long-term yields and a flatter curve.
However, through out the process, like everybody else who is in charge of managing a reserve, they may feel like walking on a tight rope – they have to strike a balance between return and risk, which is becoming more so as rapid development in the financial market opened up new opportunities to invest in different asset classes beyond traditional ones and, as a result, risk management challenges also mount.