A graphical representation plotting the interest rates of bonds with equal credit quality but different maturity dates, typically using government Treasury securities. The normal yield curve slopes upward, reflecting higher yields for longer maturities to compensate for time risk, while an inverted yield curve (short-term rates exceeding long-term rates) has historically been a reliable predictor of economic recessions. The shape of the yield curve is one of the most important indicators in fixed-income markets and influences lending rates, bank profitability, and monetary policy expectations.
Example
“The yield curve inverted with the 2-year Treasury yielding 4.9% versus 4.3% on the 10-year, its deepest inversion since 1981, sparking recession fears across global markets.”