Sample: what is a yield curve?

What it shows

A yield curve lines up the interest rates a government pays to borrow for different lengths of time, from a few months to thirty years. Usually, lending for longer pays a higher rate, so the line slopes up.

Why people watch the shape

When short-term rates sit above long-term rates, the curve is called inverted. Historically, inversions have often come before slower growth, because markets were pricing lower rates ahead. The timing has varied a lot, and some inversions were not followed by a recession.

The other side

A curve can also be shaped by demand from large buyers of long bonds, not only by growth expectations. If that is the cause, the signal may be weaker. One indicator should be read alongside others, such as employment and credit conditions.

What would change the picture

If short-term rates fell while long-term rates held steady, the curve would steepen. If long-term rates fell faster, the curve would flatten or invert further.