Yield curve
Interest rates plotted against how long you lend for.
Normally, lending for longer earns more, because you are taking more risk with time. That produces an upward-sloping curve.
Occasionally it inverts: short-term rates exceed long-term ones. This means the market expects rates, and therefore growth, to fall. An inverted curve has preceded most modern recessions, which is why it is watched with something close to superstition.
Normal, and inverted
Inversion means investors will lock in today's rate for a decade rather than roll short-term debt. They are betting rates, and therefore growth, will be lower later.
It is the market's collective, money-backed forecast of the economy.
Treating inversion as a timing signal. It has preceded recessions by anywhere from six months to two years.
Related terms
See Yield curve on a real company
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