Normal, flat, inverted, and steep curves
| Curve Shape | What It Signals | Historical Implication |
|---|---|---|
| Normal (upward) | Long rates above short rates | Healthy economy, growth expected |
| Flat | Short and long rates similar | Uncertainty, possible transition |
| Inverted | Short rates above long rates | Recession warning (has preceded every US recession for the past half-century) |
| Steep | Wide gap between short and long | Early recovery, accommodative policy |
Forward rates, term premium, and expectations
For what a yield-curve inversion is and why it warns of recession, see Macroeconomics for Investors › The Yield Curve, in Plain English — that beginner module owns the recession-signal treatment. The curve-shape reference above stays here; the forward-rate, term-premium, and expectations-hypothesis mechanics are what this Capital Markets module drills.
Read today's curve shape in Markets
Check the yield curve chart in the Markets view. Is the current curve normal, flat, or inverted? What does that imply?
The bond market's forecast equity investors ignore
Reading an inverted curve's signal
The yield curve shows: 2Y at 5.2%, 10Y at 4.3%, 30Y at 4.1%. What's the market signaling?
Check your understanding
Sit with the ideas.
The 1-year Treasury yields 5.0% and the 2-year Treasury yields 4.5%. What does the implied 1-year forward rate (the rate the market expects one year from now) tell you?
Why: