Inverted Yield Curve


Definition - What does Inverted Yield Curve mean?

An inverted yield curve is a period in which the interests of short-term debt instruments are higher than long-term ones. Economists think that this is an indicator of a negative economic future, judging from historical trends that show that inverted yield curves have been followed by recessions.

Insuranceopedia explains Inverted Yield Curve

The financial instrument involved in the inverted yield curve is the treasury bond issued by the government. This bond matures in 10 to 30 years and it is often considered as a risk-free security because it comes from the government, the entity that regulates the national economy. However, aggressive trading in the secondary market can cause the price of this bond to be lower. When this happens, the normal curve wherein long-term securities are supposed to yield higher interests gets inverted. Historically, when this has occurred, it was followed by a weakened economy, most recently the 2008 recession.

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