Asked Sep 12, 2019

What are yield curves?

Why are yield curves important?

What does it mean when yield curves invert?

Why are inverted yield curves usually a sign that an economic recession is on the horizon and should we be concerned about the economy going forward?


Expert Answer

Step 1

The meaning of the yield curve is defined as a curve which shows several yields or interest rates that work in accordance to the different contract lengths and also potentially follows the similar debt contract. The importance of the curve is that it shows the interest rate along with displaying the time to maturity, which is often related to the "term" of debt holding with a given borrower related to given currency. The understanding of the yield curve also reflects how there can be an actual cost that can relate with the borrowed money as defined at frequent intervals at a different periods; which can equally show the interest rates on U.S. Treasury debt along with following the maturities at a certain point of time.

Step 2

The inverted yield curve also represents a shorter-term bond that is equally paid higher interest concerning the longer-term bonds. It is also called the inverted yield curve. There can also be a sign of an impending recession which would potentially show how there can be investors expecting the interest ...

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