The yield curve refers to the relationship between a bond’s different maturities and the interest paid on them. A normal bond has an S-shaped yield curve. This is also sometimes referred to as the term structure of interest rates.
The yield curve is often discussed in the context of U.S. government bonds, Treasuries. The curve is typically referred to as ‘steep’, ‘flat’, or ‘inverted’. A normal yield curve will be steep, as investors demand a higher premium for holding onto a bond longer. As a yield curve changes, it’s referred to as ‘steepening’ or ‘flattening’.
An inverted yield curve means that investors charge more for short-term maturities than for long-term maturities. This is a very uncommon occurrence.
