Financial Terms / I - J / Inverted Yield Curve

Inverted Yield Curve

The presence of an inverted yield curve means that short-term U.S. treasury bonds offer higher interest rates than long-term U.S. treasuries. Typic ally, short-term debt offers lower rates than long-term debt as risk increases with time.

So when the yield curve inverts, it means that the near future might be much more volatile than the long term. Historically, when a yield curve inverts, it signifies a probable upcoming recession in the economy. Also, when the yield curve inverts, longer-term bonds drop in value.