What does Inverted Yield Curve mean?
The yield curve which moves downward. It is also called a negative yield curve, as in this market situation lower term bonds carry lower interest rates compared to short term bonds.
Futures Knowledge Explains Inverted Yield Curve
Yield Curve is a line graph of maturity period of bonds and their interest rates. The maturity period of bonds such as the three-month, two-year, five-year and 30-year is shown on x axis and their interest rates on y axis. Normally the long duration bonds carry higher risk and so have higher interest rate. The yield curve normally moves upward. But if the economic outlook is not positive, short-term interest rates become higher than long-term rates. The yield curve moves downward and its shape inverts.
The inverted yield curve is a bearish indicator and may signal coming recession. For example, just before 2008 crisis, US money market witnessed inverted yield curve.