What is meant by the term yield curve?
We often hear talk of interest rates going up and going down as if all rates moved together. The reality is that the rates on bonds of different maturities behave quite independently of each other, with short-term rates and long-term rates often moving in opposite directions simultaneously and this difference is the yield curve. A normal yield curve shows that longer maturity bonds have a higher yield compared to short term bonds, due to the risks associated with time. Then, an inverted yield curve is one where the short term yields are higher than the longer-term yields, which can be a sign of upcoming recession. Finally, a flat yield curve is one in which the short and long term yields are very close to each other, which can mean the economic landscape is about to change. The slope of the yield curve is also seen as important, since the greater the slope, the greater the difference between short and long term rates. In a nutshell, the shape of the yield curve gives us clues about fut
