Definition of Inverted Yield Curve
An inverted yield curve shows that the long term investments are showing lower rates than short term investment yield curves. A yield curve represents the perception of the investor in a market and under normal economic conditions, the yield curves are upward slopping for long term investments and comparatively lower for short term investments.
Under recession, the returns on investments with longer maturity are showing a downward trend and the curve is inverted. The inverted yield curve shows that the investors’ expectations are not good and it appears as a sharp indicator that an economy is in recession.
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