What is an 'Inverted Yield Curve'?

An inverted yield curve is the interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments. ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌

Term of the Day | Words to Know Inverted Yield Curve An inverted yield curve represents a situation in which long-term debt instruments have lower yields than short-term debt instruments of the same credit quality. An inverted yield curve is sometimes referred to as a negative yield curve. The yield curve is a graphical representation of yields on similar bonds across a variety of maturities, also known as the term structure of interest rates. A normal yield curve slopes upward, reflecting the fact that short-term interest rates are usually lower than long-term rates. That is a result of increased risk and liquidity premiums for long-term investments. When the yield curve inverts, short-term interest rates become higher than long-term rates. This type of yield curve is the rarest of the three main curve types and is considered to be a predictor of economic recession. Because of the rarity of yield curve inversions, they typically draw attention from all parts of the financial world. Read More » Related to "Inverted Yield Curve" The Impact of an Inverted Yield Curve Understand how the relationship between short- and long-term interest rates contributes to an inverted yield curve – a noteworthy economic event. Read More » Bond Yield Curve Holds Predictive Powers The bond yield curve measure can shed light on future economic activity, inflation levels, and interest rates. Read More » SPONSORED BY INVESCO The Complete Guide to ETFs ETFs are becoming increasingly popular and soaring to new heights among investors. Invesco's insights can help you determine if these investment vehicles are right for you. Learn More » Understanding Treasury Yield And Interest Rates By understanding the factors that influence treasury yield and interest rates, you can learn to anticipate their movement and profit from it. Read More » Sign Up for 'The Express' Want more Investopedia market news? Get market insights and financial headlines before the opening bell. Make your mornings more enjoyable, for free. Check it Out » Related Definitions Short-Term Debt Short term debt, also called current liabilities, is a firm's financial obligations that are expected to be paid off within a year. Read More » Treasury Yield Treasury yield is the return on investment, expressed as a percentage, on the U.S. government's debt obligations. Read More » 30-Year Treasury The 30-Year Treasury, formerly the bellwether U.S. bond, is a U.S. Treasury debt obligation that has a maturity of 30 years. Read More » Maturity Date The maturity date is the date when the principal amount of a note, draft or other debt instrument becomes due and is repaid to the investor. Read More » CONNECT WITH INVESTOPEDIA Email sent to: mondemand.forex@blogger.com To update your newsletter preferences or unsubscribe, click here. 114 West 41st St, floor 8 New York NY 10036 © 2020, Investopedia, LLC, All Rights Reserved | Privacy Policy