Yield Curve

Definition

The yield curve is a graphical representation of interest rates (yields) on bonds of equal credit quality but different maturity dates. A normal yield curve slopes upward, with longer-term bonds offering higher yields to compensate for the additional risk of time. A flat yield curve indicates similar yields across maturities, often signaling economic uncertainty. An inverted yield curve, where short-term yields exceed long-term yields, has historically been one of the most reliable predictors of recession — it has preceded every US recession since 1955 with only one false signal. The yield curve is closely watched by economists, traders, and the Federal Reserve as a key indicator of economic health and future interest rate expectations.