Option Investor
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Inverted Yield Curve

An Inverted Yield Curve is a graph plotting bond yields, where short-term interest rates are higher than long-term interest rates. The dividend yield is plotted along the vertical line and bond durations are plotted moving outward on the horizontal. This type of curve results from a surge in demand for short-term credit, which drives short-term rates higher. It can indicate an unhealthy economy with high levels of inflation. It can also signal a possible recession on the horizon. The Inverted Yield Curve is an unusual occurrence, as long-term interest rates tend to be higher than short-term.