What Is an Inverted Yield Curve? Why Does It Point to Recession?

What is an inverted yield curve?

An inverted yield curve occurs when the short-term interest rate of a security trend is higher than the long-term interest rate of a comparable security. Long-term rates tend to be higher than short-term rates because both interest rate risk and default risk increase over time. When the short-term interest rate is higher than the long-term interest rate, an inversion occurs.


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