Money & Finance · intermediate
What moves on the Term Structure of Interest Rates diagram
Expected future rate cuts drag long yields below the policy-anchored short end. Inversion is the bond market pricing in a downturn.
Normally the curve slopes up: longer lockups earn higher yields.
Markets start smelling recession and pile into long bonds, expecting rate CUTS ahead.
Long yields sink below short yields: the curve inverts.
An inverted curve has preceded every US recession since the 1960s with about a year's lead. It is the market's most famous warning light.
Examiners ask this as: inverted yield curve, inversion, recession signal, flight to bonds, long yields fall below short.
Other scenarios on Term Structure of Interest Rates