Definition
An inverted yield curve occurs when short-term bonds yield more than long-term bonds. This unusual condition suggests investors expect rates to fall, often due to anticipated economic weakness. Historically, yield curve inversions have preceded most U.S. recessions, making it a closely watched indicator.
Example
When 2-year Treasury yields 5% but 10-year yields only 4%, the curve is inverted, potentially signaling economic trouble ahead.
FAQ
What is Inverted Yield Curve?
When short-term interest rates exceed long-term rates, often signaling recession.
Why is Inverted Yield Curve important?
Inverted Yield Curve helps investors evaluate fixed income and make more informed decisions.
Related Terms
Yield Curve
A graph showing interest rates of bonds with equal credit quality but different maturity dates.
Recession
A significant decline in economic activity lasting more than a few months.
Interest Rates
The cost of borrowing money or the return for lending money, typically expressed as a percentage.