What Is an Inverted Yield Curve?
An inverted yield curve shows that long-term U.S. Treasury debt interest rates are less than short-term interest rates. When the yield curve is inverted, yields decrease the farther out the maturity date is. Sometimes referred to as a negative yield curve, the inverted curve has proven to be a reliable indicator of a recession.
As background, the yield curve is a graphic depiction of the borrowing cost associated with debt securities of different maturities. Normally, the yields for shorter-term securities are lower than those for longer-term securities.
Key Takeaways
- The yield curve graphically represents yields on similar debt securities across a variety of maturities.
- An inverted yield curve forms when short-term debt instruments have higher yields than long-term instruments of the same credit risk profile.
- An inverted yield curve is unusual; a normal yield curve slopes upward,…
