A chart showing interest rates for bonds of different maturities.
The yield curve is a graph showing interest rates (yields) for bonds of the same credit quality but different maturities (1 year, 5 years, 10 years, 30 years). Normally, the yield curve slopes upward: longer-term bonds offer higher yields because investors demand compensation for locking up money longer. This is the "normal" yield curve. When the curve inverts (short-term rates exceed long-term rates), it signals recession concerns and has historically preceded recessions. A flat yield curve shows little difference between short and long rates, often indicating economic transition. The Fed controls short-term rates through monetary policy; market forces determine long-term rates based on inflation expectations. Monitoring the yield curve helps predict economic cycles; bond investors use it to decide between short and long-term bonds.