Yield Curve Inversion
What is the Yield curve:
The yield curve graphically represents yields on similar bonds across a variety of maturities. it is also known as the term structure of interest rates
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It is a line that plots yields (interest rates) of bonds having equal credit quality but different maturity lines. the slope on the curve gives the idea of future interest rates and economic activity
Two yield curve signals a spread between two maturities
Important points
- Yield curve graphically represents yields on similar bonds across a variety of maturities
- An inverted yield curve occurs when short-term debt instruments have higher yields than long-term instruments of the same credit risk profile
- An inverted yield curve reflects bond investors' expectations for a decline in longer-term interest rates, typically associated with recessions
- Market Participants and economists use a variety of yield spreads as a proxy for the yield curve
