Quick Definition

An inverted yield curve occurs when long-term debt instruments have a lower yield than short-term debt instruments, which is contrary to the normal market condition.

Examples

• 1During a period of economic uncertainty, investors might prefer long-term securities, causing short-term yields to rise above long-term yields.
• 2In 2006, before the financial crisis of 2008, the U.S. Treasury yield curve inverted, which was an early warning sign of the upcoming recession.
• 3A temporary inversion in the yield curve can occur due to market reactions to unexpected short-term interest rate hikes by the central bank.
• 4Investors analyzing bond yields might notice an inversion and consider it a signal to adjust their investment strategies, anticipating economic slowdown.

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