Inverted Yield Curve

Where yields on short-term bonds are above those on long-term bonds. This is a reversal of the normal yield curve where long-term rates are higher to reflect the risk of holding them for longer. An inverted yield curve may reflect a glut of short-term paper, which pushes down prices and pushes up yields, or of a shortage of long-term bonds, which pushes up prices and pushes down yields. It may also reflect expectations that inflation will be lower in the long term than in the short term, producing an eventual drop in yields. Also known as a negative yield curve.